How to Build Your Small Business Credit Score

Have you considered getting additional financing to run your business? If so, it’s very important to build your small business credit score and maintain it.

Similar to your personal credit, your small business has its own separate credit score. There are many benefits to building and maintaining a healthy business credit score. One of them is to show lenders, suppliers, and future business partners your creditworthiness. This way, you are more likely to get approved for a loan or be able to grow your business.

Building your credit score might seem intimidating at first. But if you are just getting started, you are actually in a good position to apply some crucial steps to keep your score high.

Here are the steps to build your small business credit score.

Understand the basics & build your foundation

The first step is to understand what a business credit score is. In simple terms, a business credit score determines your creditworthiness and how likely you are to pay your debts on time. Lenders use this information to see your ability to pay back a business loan or make on-time payments on credit cards.

For the most part, lenders look at the following criteria when measuring your creditworthiness:

  • What you currently owe to other lenders and suppliers
  • How much credit you have used up (credit utilization)
  • If you have made your payments on time
  • How old your company is and what industry it’s in

Now that you have a better understanding of it, you should aim to set up your business the right away from the start so you won’t have to try and fix it later. And if you already have an established business, consider going through these steps to make sure you’re on the right path:

  • Choose and set up a consistent business name & register it (Sole proprietorship form, corporation form)
  • Determine a business address – If you already have a physical location, great! If not, you can use your home address, shared office space, P.O. Box
  • Get a business phone number – there are phone services that can provide you with a separate number to ring on your phone. This way you can separate your business and personal calls.

Separate your business and personal finances

As a small business owner, you should keep your personal accounts separate from business-related ones. There are many reasons for it, but some of the major ones are:

  • Managing cash flow becomes easier as you can have a better idea of business expenses
  • Easier to do your business taxes
  • A faster process with business loan applications
  • Makes your business appear more professional & established to suppliers

The first step towards separating your personal and business finances is to open up a business bank account and apply for a business credit card. This is beneficial as it will also keep your personal financial activity from affecting your score.

Get a DUNS number

Dun & Bradstreet is one of the top three business credit bureaus that is recognized internationally. A D-U-N-S number is the identification number for your business in the Dun & Bradstreet’s credit database. The bureau will then use this number to track your lending and vendor activities to monitor your financial stability and create a report of your creditworthiness. Use this link to register for a DUNS number.

Establish different business accounts

Now that you have a business account and credit card, consider opening a few lines of credit in your business’ name. By using these accounts wisely, you are establishing your business as a trustworthy borrower. The credit bureaus can then look at your accounts and keep track of your financial stability. This is a very small and easy step but it can have a huge impact on your business in the long run.

Choose vendors that report

Payment history is the most important part of business credit scores, so you want to make sure that people know about it. That’s why you should do business with suppliers and vendors that actually have a solid reporting strategy and report your payment history to bureaus. You want to make sure lenders know that you are reliable. If you already have an established business and have been working with a vendor for some time, ask them about their reporting policies.

Pay on time or earlier

This is one of the most important parts. If you want to build your business credit score, you must pay your bills and invoices on time or even earlier. Why earlier? Duns & Bradstreet PAYDEX Score has a scoring system up to a 100. By paying your bills on time, you might be able to get to 80. But if you want to earn a total of 100, you have to constantly pay early.

As a business owner, you are definitely busy a lot of times. So you might miss or forget to pay your bills on time or earlier. But what you can do is set reminders on your phone or mark due dates on your calendar.

Maintain accurate business information

As mentioned previously, Duns & Bradstreet is the purely business focus bureau out of the main three. Regardless, you should always check your business’s profile on all three to make sure there aren’t any errors and make updates if necessary. For instance, if you move your business to a new location, or decide to change the name of your business altogether, you must update your profile information. Not only is this a good business sense, but will also allow lenders to access the latest and most accurate data of your business available when they search for you.

Utilizing your credit is key

Credit utilization is the most important part of your business credit score. When you open lines of credit, don’t let them sit there for eternity. Utilize your credit cards but don’t max out your credit limit. You can aim for 20 to 30% credit utilization. Keep your usage steady. This will help not only your record as being dependable but also as creditworthy.

Monitor your credit & keep a public record

Identity theft and business credit frauds are serious problems. That’s why it’s a good idea to monitor your business credit score at all times and report any inaccuracies that you don’t recognize. You don’t have to check it every day – at least once a month is enough to help you spot suspicious activities.

At the same time, credit bureaus monitor your business’ public records and will record any legal filings made in your business’ name. Some of these include bankruptcies, tax liens, or other incomplete payments that indicate serious risk. These negative records are difficult to erase. In some cases, they stay in the bureaus’ records for more than 10 years.