Business Credit: What It Is and How to Build It

A good business credit score can be a game changer for your small business. With good business credit, you can more easily secure financing, get better terms from your vendors, attract better investors, lower your insurance rates, and even increase the value of your business.

So what is business credit? And how do you build it?

Let’s take a look at how business credit works, how it can help you grow your small business, and how you can build it.

What Is Business Credit?

A business credit score is a reflection of your business’s creditworthiness. Basically, it tells lenders how likely you are to pay back any money that you borrow. Just like a personal credit score, a higher score can bring a number of borrowing benefits — from lower interest rates to higher likelihood of approval.

Any small business can build business credit (with the exception of sole proprietorships). You just need your employer identification number (you can obtain yours for free with the IRS assistance tool), a business bank account and some good business borrowing habits.

How Does Business Credit Work?

When you take out a business loan, establish trade lines or open a business credit card with a lender or vendor that reports to the credit bureaus, your payment history and other information will likely be reported back to one of these bureaus.

Your business credit score is calculated from the information in your business credit reports. This can include your repayment and credit history, your debt usage, the amount of debt you’re carrying and the age of your business.

You’ll notice that your business credit score doesn’t look the same as your personal score. This is because personal business scores range from 300 to 850, while business credit scores range from 0 to 100. Most lenders consider 80 or above to be a good business credit score.

The business credit bureaus may also use different measurements and names for your business credit score. While exploring you may see references to DUNS numbers or PAYDEX scores. DUNS numbers are used by Dun & Bradstreet to help identify your business in their system (your lenders and partners will be able to see and verify your business this way as well). A PAYDEX score is another name for your business credit score.

What Are the Business Credit Bureaus?

There are three major business credit bureaus that collect the information used on your business credit report.

  • Dun & Bradstreet
  • Experian Business
  • Equifax Business

A big part of your small business credit report will be made up of the information that is reported to the bureaus, but the bureaus can also pull information from public records, your corporate financial reports, press releases or news stories and of course self-reported information. When you review your report you’ll see all this information plus your business’ information. This can include names, addresses, phone numbers, your business structure (i.e. limited liability company), etc.

What Is a Business Credit Score Used For?

Your business credit score is used for many purposes —  and some of them may surprise you.

Business financing. Many lenders use your business credit profile to help them make decisions about borrowers. This may apply to business credit cards, small business loans or a business line of credit. Some lenders may also use your personal credit score if you don’t have established business credit.

Vendor or supplier contracts. Vendors use business credit scores to determine if your business would be a good customer. A good score shows that you’re more likely to pay invoices on time.

Insurance rates. Your business credit score can influence the rates and terms of your insurance.

Partnerships and investors. Your credit score is one of many indicators of your business’s financial health. Most potential partners and investors are more inclined to work with a business that has healthy finances.

Why It’s Important To Build Your Business Credit

A good business credit score can make it easier to grow your business and reach your goals. It opens doors to new opportunities. Here are just a few reasons why building your business credit is important:

It makes it easier to secure financing. With good business credit, you’re more likely to be able to secure financing. There are many types of business credit, but a good score can also land you lower interest rates, higher credit limits and more favorable terms. Though there are often many other factors that go into a lender’s decision, a good credit score can smooth the way.

It can protect your personal finances and credit. When you use a business card or business loan, it can help insulate your personal credit score from the ups and downs of running a business. According to the Small Business Administration (SBA), 46% of all small business owners use personal credit cards for business expenses. This can run up their credit utilization rate and likely doesn’t offer the amount of capital that they need. Plus, if anything prevents them from making the payments on time it’ll be the owner’s personal credit being affected. Using business credit can help protect you from this.

Your vendors may offer you better deals. Vendors love businesses they know they can rely on. A good business credit score can show that you’re a trustworthy and reliable customer. They may give you better rates or offer you deals to keep you around.

It can increase the value of your business. Your business credit score is a transferable asset. That means if you ever decide to sell your business, the credit score goes with it. A good credit score can make your business a more valuable acquisition.

Your insurance rates might be lower. Insurance companies are also more likely to extend lower rates and premiums if you have a good business credit score.

How Do I Check My Business Credit Score?

You can check your business credit report and your business credit score on a number of different sites. (You may recognize some of the companies you use to monitor your personal credit reports.) Keep in mind that you’ll likely have to pay. There are some free options, but they’re often not very detailed — you pay for what you get. You can access your report through any of the major business credit reporting agencies.

One of the major differences between personal and business credit scores is that anyone who pays can access your full business credit report.

How Do I Build Better Business Credit?

If you’re an entrepreneur or small business owner looking to build credit, you may not know where to start. It can be a little overwhelming at first, especially if you’re a new business or startup. But building business credit can help you thrive. Just keep in mind that like personal credit, your business credit rating won’t become perfect overnight.

Know your score. The first step to improving your credit is to know where you are. Take the time to get familiar with your business credit profile and understand what it says about your business’s credit. This can show you where you can improve the most.

Get financing that helps build your score. The next time you need financing, whether you need to fill cash flow gaps or fund a new project, look for lenders that report to the business credit bureaus. You don’t always need to have an established business credit history to secure financing — some lenders will use your personal information or ask for a personal guarantee. This kind of lending can help you build your score. You can’t establish a credit history if you don’t have anything in your profile to report.

Pay on time. If you have any credit lines, loans or other payments, it’s important to make on-time payments. Just like your personal credit history, this is one of the biggest factors that goes into calculating your business score.

Establish trade accounts with your suppliers. Vendor credit is relatively easy to obtain and your prompt payments with suppliers are a good way to build a strong profile. Thirty- or 60-day payment terms might not be a $50,000 or $100,000 small business loan, but it can help build your credit profile. Just make sure your vendors report to the credit bureaus.

Monitor your credit profile. While you’re working on building your business credit, make sure you keep an eye on your profile. This can help you identify any red flags, mistakes or areas for further improvement.

Baylee Patel, CFEI, is a copywriter specializing in finance. Before joining Enova in 2022, she worked for a financial planning firm in Northern Virginia, where she regularly contributed articles on financial literacy, personal finance and other monetary trends. She graduated from Virginia Commonwealth University with a bachelor's degree in communications and received her certification for financial education instruction from the National Financial Educators Council.

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