Like your personal credit score, a business credit score is essential to running your business and keeping your finances healthy. A good business credit score allows you to borrow money at favorable rates to expand your business and can help you get better terms for buying goods to sell.

A business credit report provides an overview of a company’s payment history and how that might influence its ability to fulfill contractual obligations, now and in the future. Suppliers, lenders and business partners rely on business credit reports to help determine the level of risk in a relationship with a company and use that information to help decide whether to do business with them.

You can get a business credit report for your company. If you sell goods with payment terms, you should consider getting credit reports for businesses you work with, too.

How to Apply for Business Credit

Before applying for business credit, you must set up a legal business entity separate from your personal finances. Separating personal and legal identities offers you personal legal protection and establishes a business credit score distinct from your personal history.

Here are the steps to follow:

• Incorporate as an S Corporation or LLC to create a business entity.
• You must obtain two identification numbers:
  • Register the business entity with Dun & Bradstreet to obtain a DUNS number. It is a unique nine-digit identification number for each physical location of your business.
  • Apply for an Employer Identification Number from the Internal Revenue Service. It’s similar to a Social Security Number for your business.
• These two identification numbers establish your business as its own entity, separate from your personal credit score and identity. Now, you can start building your business credit score.
• Open a business banking account in the legal business name.

Once you establish a business identity, you can start building your business credit history.

What’s in a business credit report?

A business credit report includes:

• Company size and history
• Payment history
• Credit utilization
• Debts
• Public records (liens, judgments, bankruptcies)
• Information from vendors, suppliers and lenders

The Small Business Administration reports that poor credit history is one of the primary reasons loan applications for small businesses are declined. A poor credit score could also mean higher insurance rates and less attractive terms for buying products on credit. Building a good credit history and improving your business credit score before applying for a loan is a good idea, just like when you buy a car or a house.

A good business credit report will help you:

• Request higher trade credit limits from suppliers
• Get better interest rates on loans from banks
• Get lower premiums on insurance policies
• Get better lease terms on equipment and real estate
• Negotiate freight terms
• Obtain payroll credit lines
• Win contracts from large chains
• Bid on contracts
• Seek business loans without a personal guarantee
• Seek line-of-credit increases

Business credit scores from Dun & Bradstreet range from 0 to 100. Generally, scores above 75 are considered excellent and will help your business have better access to credit.

3 Tips for Success in Building Your Business Credit Score

Regardless of the size of your business, the basics of building business credit are the same.

Here are a few tips for making your score move in the right direction. If you have explored how to raise your personal credit score, these suggestions will seem very familiar.

Make on-time payments

A common credit card myth states that carrying a balance will help build your credit score. But if you have a business credit card, paying the balance in full each month is actually a good idea.

Late payments are one of the first signs of a business under stress. Failure to pay creditors can lead them to submit negative reports to the business credit bureaus. Delays or defaults will damage your business’s ability to obtain credit or to prove that you’re a worthy risk to another company.

Monitor business credit scores and ratings

To help avoid credit risks such as fraud or incorrect information, business owners should regularly check their business credit score with a credit reporting service.

Submit trade references

A small business may not have loan payments to build a credit history. Regular payments to vendors can serve the same purpose. Suppliers often extend trade credit to their business customers, requiring full payment by a specific date. You can also ask vendors to report your payments to credit agencies or services to build your payment history. Also, report late payments from your customers to establish a record of your business’s financial picture.

There’s no set schedule for building your business’s credit score. It takes time and discipline to position your business for success.

We’re here to ease your journey. Let Cadence Bank help you with all of your business banking needs. From Business Checking and Credit Cards to Merchant Services, we can provide solutions for every stage of business. And for a limited time, receive $150 off your first order of business checks¹. Visit us online to learn more.

¹ The discount is only applicable during May and June 2024. Cannot be combined with other check promotions. No value if checks are not purchased from Cadence Bank.

Sources:

https://www.dnb.com/resources/business-credit-report.html

https://www.dnb.com/resources/how-to-build-business-credit.html

https://www.experian.com/small-business/business-credit-basics

https://smallbusiness.experian.com/main.aspx

https://www.sba.gov/business-guide/plan-your-business/establish-business-credit

https://www.equifax.com/business/product/business-credit-reports-small-business/

This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.