The Business Owner’s Guide to Understanding and Building Business Credit

Section 3: Ways to Build Your Business Credit

Tip 1: Get a Business Credit Card

Using your newly acquired EIN and business name, open a credit card specifically tailored for businesses. If you are inexperienced with credit card usage, it is recommended to start off with just one business credit card. If you have credit card experience you can open several cards, as long as you manage them responsibly. Having several credit card accounts for your business will help you keep your credit utilization low which plays a factor in your business credit scores. The idea behind getting a business credit card is that you will use it responsibly (by paying off your bill on time and in full each month), and the card provider will then report positive behavior to the business credit bureaus, building your business credit. Most business credit cards report your activity to at least one of the business credit bureaus. When shopping for a business credit card, inquire with different providers on whom they report to. If a card provider does not report to any of the bureaus, you will miss out on an opportunity to build your business credit.

When it comes to your business card, practice responsibility. This involves:

• Always paying your credit card bill on time and in full. This is the most important thing to keep in mind as it will positively impact your business credit and help you avoid credit card interest. Not paying your bill on time will damage your business credit as opposed to building it, and may also damage your personal credit history. It is recommended to set up automatic payments to make sure you never miss a bill.
• Reading and understanding a card’s terms, such as the rewards, benefits, fees and interest rates.
• Only spending what you can afford to pay back in full when your bill comes.
• Keeping your credit utilization low.
• Keeping credit card accounts open. Unless you are paying an annual fee, it’s usually better for your business credit scores to keep your credit accounts open. Keeping accounts open helps both your credit utilization and the average age of your accounts.

Keep in mind that if your business is relatively new, it is likely you will need to personally guarantee any business credit card accounts you open.

Tip 2: Create Trade Lines with Vendors, Lenders, and Suppliers

Certain business-to-business merchants report trade lines to the business credit bureaus. They can report information on your account such as your payment history, which will then turn up on your business credit reports.  Always pay your bills on time; this can be another way of building your business credit. Ask the merchants you do business with if they report credit lines to the business credit bureaus. If they do not, ask them to start doing so. In some cases, you may need to fulfill some requirements prior to them reporting your activity, for example, meeting a minimum purchase amount.

A Final Note: Keep track of your Business Credit Reports

Even after you have established your business credit reports and are taking steps to build your business credit, your journey to excellent business credit is still not over. You frequently check your business credit reports to make sure there are no errors. An incorrect entry on your credit reports can lower your credit scores, consequentially costing you more in interest rates or stop you from being approved for a line of credit. You can update and dispute your business information online at the relevant credit bureaus website.

About the Author

Oliver Browne is a Credit Industry Analyst for Credit Card Insider. Credit Card Insider’s goal is to provide educational information on various financial topics and help people and businesses alike make informed decisions around credit. With an educational background in law and business research, Oliver researches and writes on a multitude of topics including small business, credit building, and personal finance.