What is business credit and how do I build it?

July 10, 2023 | 2 minute read

Rob Snead

Answered by
Rob Snead
Credit Products Executive
Bank of America

A business credit profile is a characterization of your business’s credit history that establishes its ability to borrow. Your business credit score is a reflection of your business’s creditworthiness and influences your access to credit products such as credit cards and loans. Both your credit profile and your credit score give credit agencies, lenders, vendors and suppliers an indicator of how you handle your debts and your likelihood of paying them on time. Building your business credit profile can pay off: The lending products available to small businesses include lines of credit, business credit cards, term loans, commercial real estate loans and letters of credit. Your small business banker can help you understand your options.

 

Why is your business credit profile important?

The ability to borrow money at the right time can help you jump on opportunities and navigate challenges. You can use credit to add to your working capital, lease equipment or vehicles, or acquire another business.

 

How to build a business credit profile

Your business’s ability to borrow depends on its credit profile and its credit score. Here is how to improve both:

 

  1. Apply for an Employer Identification Number (EIN) through the IRS to help separate your business and personal finances.
  2. Consider forming an entity such as an LLC or corporation, another step toward creating a separate identity for your business.
  3. Open a business bank account.
  4. Ask vendors such as big box home improvement and office supply stores to report your positive payment history to credit bureaus. Once you’ve built a history of paying these vendors on time, negotiate credit, such as the ability to pay them in 30 days.
  5.  Apply for a business credit card and make on-time — or early — payments.
  6. Keep the percentage of the available credit you use to 30% or less. High credit utilization lowers your credit score.
  7. Apply for a D-U-N-S (Data Universal Numbering System) number with Dun & Bradstreet. This unique nine-digit number lets the agency track your business’s credit score. You usually don’t need to apply to the other major bureaus in order for them to track your business’s credit profile.
  8. Monitor your credit scores and reports with credit bureaus to be sure their information is accurate, and to correct any errors. A high credit score can improve your chances of getting approved for credit and may lead to a better interest rate and repayment terms.

 

Bottom line

Ultimately, taking a proactive approach to building your business credit profile and using the right tools can pay off, bringing better access to capital and lower interest rates.

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