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“Wait, I can have a business credit score that’s separate from my personal credit score?”
Yes you can!
Many entrepreneurs are unaware of this fact when they apply for a business loan, and instead believe that their personal credit score is the only credit measurement they are being judged on. To be clear, personal credit score can certainly impact the terms and amount of a potential loan, so you should absolutely work on improving it, and services such as CreditRepair.com can help you monitor and optimize your personal credit.
When you are trying to establish BUSINESS credit, the rules are a bit different. FICO is not your ultimate master, in this case your Paydex score is. It’s similar to a FICO but it calculates your credit history, via your “DUNS” number, on three or more open business tradelines, and it is tracked by Dun & Bradstreet.
If you build this score you can get credit, revolving trade lines of credit and more even if your personal credit isn’t stellar.
Here are 5 ways for you to improve your business credit score:
1. Incorporate your business
Forming a corporation or LLC is essential primarily for the sake of legal liability. Incorporating and maintaining separate business bank accounts and credit cards can help prevent creditors from going after your personal assets in the event the business goes under. It’s also an important step toward building business credit. With an LLC or corporation, you can apply for a business credit card and begin to pay all of your bills from your corporate accounts which starts you down the path of building a (hopefully successful) payment history. Make sure that you set up your EIN as soon as you register your business.
2. Monitor Your Business & Personal Credit
Credit bureaus such as Equifax, Experian, Transunion and Dun & Bradstreet collect data and have their own ways of doing statistical credit risk modeling to create business credit scores. While the first 3 You should make sure to keep your information updated with all three since you won’t know which report a prospective lender, vendor or customer will check. You should also monitor your credit reports regularly to make sure they are accurate and pay close attention to any items showing up in the “negative” category.
Equifax has a solution that allows you to check your personal AND business credit for a fee. Also take a look at a great new company called Nav.com allows you to check your business and personal credit at the same time even easier, for free. On the flip side, if you are worried about the credit risk of a potential customer, Dun and Bradstreet offers a product in which you can access the business credit report of a potential customer.
3. Get A DUNS Number ASAP
To obtain your D-U-N-S number, first enter your legal business name, city, and state in the search box on the D&B website and click on the search tab. This will verify if your company is already listed with D&B and has been issued a D-U-N-S number. If it’s not listed you can register on the site and get setup all in one place. Dun and Bradstreet owns this process so get familiar with their company.
4. Apply for Tradelines
Trade lines, also called trade references, reporting on your business credit report are what triggers a business credit rating. Trade lines come in many forms. Here’s some examples of trade lines that you can setup quickly:
➣ Home/Office Improvement: Home Depot, Lowes
➣ Office Supply: Quill, Staples, Office Depot
➣ Shipping: Uline, Fed Ex, UPS
Dun and Bradstreet, for example, requires at least three trade references to create a Paydex Score. So it’s obviously important to have vendors and suppliers who 1) you’ve had a good payment history with and 2) who share payment data with the business credit-reporting agencies.
Be ultra careful to not focus on trade lines that don’t report to the credit rating agencies. Not all of them will. You might consider Dun & Bradstreet’s CreditBuilder Premium which can help you add positive payment experiences to your business credit file. You should also check out Nav.com’s site to help you pick and choose between credit cards, and also lines of credit that report to the agencies, that can help you build your history while increasing your available capital at the same time.
5. Pay your Bills Early
Paying your bills on time is one of the most important drivers toward building a good business credit score. To create an even bigger impact, pay your bills early — as early as you possibly can. According to the SBA’s website, “The greater the number of days a company pays sooner than terms the greater the impact it will have on its business credit scores.” In addition, some creditors will offer discounts for early payment. Win-win!
That’s all there is. Once you do the steps above you will be well on your way to establishing a great business credit score and getting access to more business financing than you ever had before.
As a special bonus for our readers, take 15% off of the Dun And Bradstreet special Expedited D-U-N-S number service by using this promo code: RSF15OFF at checkout.
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