Business Credit Fundamentals - Building Business Credit

Consumer vs. Business Credit

While consumer (personal) credit and business credit share some similarities, they operate under different rules, use different scoring systems, and serve different purposes. Understanding these differences is essential for any business owner.

Personal Credit

• Tied to your Social Security Number
• Score range: 300-850 (FICO)
• Protected by FCRA and other consumer laws
• Impacts personal loans, credit cards, mortgages
• Free annual reports required by law
• Negative items remain 7-10 years
• Inquiries impact score for 12 months

Business Credit

• Tied to your EIN (Employer Identification Number)
• Score range: 0-100 (most bureaus)
• Less regulatory protection than consumer credit
• Impacts business loans, vendor terms, contracts
• Reports often require payment to access
• Information may stay longer on reports
• Inquiries generally don't impact score

Key Structural Differences

Public information: Business credit reports are often publicly accessible, while consumer reports are private
Scoring models: Business credit uses different scoring algorithms (PAYDEX, Intelliscore, etc.)
Data sources: Business bureaus collect data from vendors, suppliers, and financial institutions
Legal protections: The FCRA applies differently to business credit reports
Personal guarantees: Many business credit applications still require personal credit checks

Why Business Credit Matters

Building strong business credit is one of the most important steps you can take for your company's financial health. Here's why it matters:

Access to Business Funding

Strong business credit opens doors to business loans, lines of credit, and SBA financing with better terms and lower interest rates. Lenders use business credit to assess risk when your company applies for financing.

Better Vendor and Supplier Terms

Vendors check business credit before extending trade credit (Net 30, Net 60 terms). Good credit means more suppliers willing to work with you, better payment terms, and potentially lower costs.

Separation of Personal and Business Finances

Business credit allows you to build your company's financial identity separately from your personal credit. This protects your personal assets and credit score from business financial issues.

Lower Insurance Premiums

Some insurance companies use business credit scores to determine premiums. Better credit can mean lower costs for business insurance.

Competitive Advantage

When bidding on contracts, especially government contracts, your business credit may be reviewed. Strong credit can give you an edge over competitors.

Business Value and Exit Strategy

A business with established credit is worth more. If you ever sell your company or bring in investors, strong credit adds to the business's value.

Building Business Credit: The Fundamentals

Building business credit requires establishing your business as a separate legal and financial entity. Follow these foundational steps:

Form a Proper Business Entity

Register your business as an LLC, corporation, or other formal entity. Sole proprietorships don't create separation between personal and business credit. Choose a structure that:

Provides liability protection
Allows for business credit building
Makes tax and legal sense for your situation

Get an EIN (Employer Identification Number)

Apply for a free EIN from the IRS at irs.gov. This is your business's "Social Security Number" and is required to:

Open business bank accounts
Apply for business credit
Establish business credit profiles
File business tax returns

Obtain a D-U-N-S Number

A D-U-N-S Number is a unique 9-digit identifier assigned by Dun & Bradstreet. It's free to obtain and is essential for:

Creating your D&B business credit file
Applying for government contracts
Registering with SAM.gov
Many business credit applications

Apply at dnb.com—the basic D-U-N-S number is free, though D&B offers paid services.

Open a Business Bank Account

Separate your business finances completely from personal accounts. A dedicated business account:

Establishes your business's financial identity
Is required for many credit applications
Simplifies accounting and tax preparation
Demonstrates professionalism to vendors

Establish a Business Address and Phone

Use a physical business address (P.O. boxes may be rejected) and a dedicated business phone number. This information should be consistent across:

Business registration documents
Credit applications
Business directories and listings
Your website and marketing materials

Start with Trade Credit

Vendor accounts that report to business credit bureaus are the easiest way to start building credit. Look for:

Office supply companies (Uline, Quill, Grainger)
Fuel cards (Shell, BP, WEX)
Shipping accounts (UPS, FedEx)
Equipment and supply vendors in your industry

Pay early or on time to build positive payment history.

Apply for a Business Credit Card

Once you have some trade credit established, apply for a business credit card. Start with:

Secured business cards if needed
Store cards that are easier to qualify for
Cards that report to business bureaus (not all do)

Business Credit Bureaus

Unlike consumer credit, which has three main bureaus, business credit is tracked by several different organizations with different scoring models:

Dun & Bradstreet (D&B)

The largest and most widely used business credit bureau. Key scores include:

PAYDEX Score (0-100): Based on payment history; 80+ is considered good
D&B Rating: Overall creditworthiness assessment
Financial Stress Score: Predicts likelihood of financial distress

Getting a D-U-N-S number automatically creates your D&B file.

Experian Business

Provides business credit reports and scores including:

Intelliscore Plus (0-100): Predicts likelihood of serious delinquency; 76+ is low risk
Credit Summary Score: Quick snapshot of creditworthiness
Financial Stability Risk Rating: Predicts business failure risk

Equifax Business

Offers business credit data and scores including:

Business Credit Risk Score (101-992): Higher is better
Business Failure Score: Predicts likelihood of business failure
Payment Index: Tracks payment performance over time

Other Business Credit Sources

FICO SBSS Score: Used for SBA loans; ranges 0-300
CreditSafe: International business credit reporting
Ansonia Credit Data: Focused on payment data
PayNet: Tracks business loan performance

Important Note

Unlike consumer credit reports, business credit reports often require payment to access. Some bureaus offer monitoring services. Check your reports periodically to ensure accuracy and track your progress.

Business Credit Readiness Checklist

Use this checklist to ensure your business is properly set up to build credit:

Business is formally registered (LLC, Corp, etc.)

Not operating as a sole proprietorship under your personal name.

Have an EIN from the IRS

Your business's tax ID number, free from irs.gov.

Have a D-U-N-S Number from D&B

Free to obtain at dnb.com, required for most business credit.

Dedicated business bank account

Completely separate from personal accounts.

Professional business address

Physical address, not just a P.O. box.

Dedicated business phone number

Listed under the business name, not personal.

Business website and email

Professional domain-based email (not gmail, yahoo, etc.).

Consistent NAP (Name, Address, Phone)

Same information across all registrations and listings.

At least 2-3 trade credit accounts

Vendor accounts that report to business credit bureaus.

Paying all accounts on time or early

Payment history is the biggest factor in business credit scores.

Business Credit Myths vs. Facts

Don't let misconceptions hold your business back. Here's the truth about business credit:

MYTH: My personal credit doesn't matter for business credit

FACT: Many lenders check both. When business credit is thin, personal credit often determines approval. Personal guarantees are common for small business financing.

MYTH: Only big companies need business credit

FACT: Businesses of all sizes benefit from established credit. It helps with vendor terms, financing options, and separating personal liability—important for any business.

MYTH: Business credit builds automatically when I pay bills

FACT: Many vendors don't report to business credit bureaus. You need to specifically choose accounts that report and verify they're building your credit file.

MYTH: I can't build business credit with a new company

FACT: New businesses can start building credit immediately with starter vendor accounts. Some vendors specifically work with new businesses to help establish credit.

MYTH: Business credit bureaus work just like consumer bureaus

FACT: Business credit has different rules, scoring models, and fewer legal protections. Reports may cost money to access, and information isn't always private.

MYTH: Once established, business credit maintains itself

FACT: Business credit requires ongoing activity. Inactive accounts may be closed, and you need to continuously demonstrate creditworthiness through payment behavior.

When to Get Professional Help

Building business credit can be complex, and professional guidance may accelerate your progress:

Consider getting help if:

• You're unsure how to properly structure your business for credit building
• Your business credit applications keep getting denied
• You have errors on your business credit reports
• Personal credit issues are affecting business financing options
• You need to build credit quickly for an upcoming financing need
• You want a strategic plan for building business credit systematically

A credit professional can help you navigate both personal and business credit challenges, identify the best accounts for building credit, and develop a timeline to meet your financing goals.

Ready to Build Your Business Credit?

Our credit experts can evaluate your current situation, help you set up properly for business credit building, and create a strategic plan for your company's financial future.

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