How to Build Business Credit: A Step-By-Step Guide
If you run a business, your main objectives are to provide excellent customer service, meet your sales revenue targets, and achieve and maintain profitability. Additionally, you should aim to develop strong business credit, which can provide access to better financing options, higher credit limits, and favorable supplier terms.
Just like developing your business itself, building business credit is not something that happens overnight. It requires time, effort, and various strategies. Keep reading this Ameris Bank blog article for a step-by-step guide on best practices to build business credit.
Before we discuss the various ways to build business credit, it's essential first to clarify what a credit score is and how it is calculated. By understanding this information and monitoring your business credit score regularly, you can take proactive steps to improve your standing.
A business credit score, often referred to as a commercial credit score, is a number that represents a company's creditworthiness. The three major credit bureaus, Dun & Bradstreet®, Experian™, and Equifax®, generate business credit scores using proprietary scoring methods. Factors that influence a business's credit score include payment history, the amount of outstanding debt, the length of credit history, and the types of credit the company uses.
Keep in mind that not all businesses have credit scores. Startup businesses need time to establish their scores, and incomplete or incorrect business information can prevent companies from obtaining credit scores.
Now, it's time to explain the steps for building business credit.
In order for you to establish a business credit profile, you need to register your business with the appropriate state or local government agency. This involves filling out the necessary forms and paying any required fees. Once your business is registered, you can apply for an Employer Identification Number (EIN) through the IRS. An EIN is a nine-digit number that acts as a Social Security number for your business, allowing you to file taxes, open a business bank account, and hire employees.
Next, you can apply for a D‑U‑N‑S® (Data Universal Numbering System) Number for free on the Dun & Bradstreet® website. D‑U‑N‑S® is a nine-digit identifier for businesses that establishes your company in the Dun & Bradstreet® database. A D‑U‑N‑S® Number can help you build business credit, apply for government contracts, and apply for federal funding.
Opening a business credit card is a great way to build your company's credit profile. You are streamlining your spending and creating a valuable financial history when you use the card for business purchases—such as office supplies, travel expenses, or inventory. Plus, consistent, responsible business credit card usage can lead to an improved credit score and higher credit limit.
Ameris Bank offers several credit card options for businesses with various features and benefits. These include a Business Cash Preferred Card, Business Card, Small Business Rewards Card, and Business Real Rewards Card. We also offer two commercial card solutions, OneCard and OneCard Plus.
Paying your company's bills, invoices, and debt (e.g., business credit card payments and business loan payments) on time can help you build your credit. Additionally, taking the initiative to pay bills before their due dates reduces the risk of late fees and can favorably impact your credit score. Moreover, fully paying off debts—rather than just making minimum payments—further strengthens your credit standing.
Establish a routine or system to keep track of due dates to ensure you pay your bills and meet your debt repayment obligations. One effective way to do this is to use your bank's bill pay system. Ameris Bank, for example, simplifies bill paying for our business customers. Customers can set one-time or recurring payments, receive reminders for upcoming payments, view invoices, check statements, and more—all from an easy-to-use online dashboard.
If your business regularly purchases goods, inventory, or equipment from vendors and suppliers, it is beneficial to establish trade lines with them. Trade credit enables you to pay vendors and suppliers after the products have been delivered. The payment due dates will depend on the agreed-upon terms. For example, if you have a net 30 trade line, you must pay the invoices within 30 days of receipt.
You can build business credit by maintaining trade lines with vendors and suppliers and meeting your financial obligations on time. And when you build strong relationships with your vendors and suppliers, you may be able to secure better payment terms or discounts.
Keeping your company's credit utilization ratio at a healthy level is another strategy to build business credit. It shows lenders, vendors, suppliers, and potential investors that your business uses credit wisely and is not overly reliant on borrowed funds. To calculate your company’s credit utilization ratio, divide the total amount of credit your company uses by your company's total credit limit. For example, if your business has used $75,000 of credit and has a credit limit of $250,000, your credit utilization ratio is 30% ($75,000/$250,000).
Ideally, it's recommended that businesses keep their credit utilization ratio ratio below 30%. If your company's ratio exceeds 30%, consider paying off your business credit card balance sooner or requesting an increased credit limit on your business credit card.
Keeping your company's debt to a minimum is another way to build business credit. This is often easier said than done, but here are several strategies to consider that can help make the process more manageable.
By carefully controlling debt, you enhance your overall credit profile and provide your business with a solid financial foundation. This allows for better cash flow management, minimizes financial risk, and can help you access capital with favorable interest rates and repayment terms.
The age-old saying "knowledge is power" is especially true when it comes to knowing your business's credit score and profile. When you understand your company's credit standing, you can make informed financial decisions and address any issues that might hurt your credit score. To obtain a business credit report, you will need to pay a fee to the credit reporting agencies that offer business credit reports—Dun & Bradstreet®, Experian™, and Equifax®.
Your business credit report will provide a top-level view of your company's financial health and creditworthiness. When you review your report, look for areas that can be improved. Pay close attention to your payment history, outstanding debts, and credit utilization. If you spot any errors or discrepancies that might affect your overall score, report them to the credit bureaus promptly and request their removal.
Whether you're seeking guidance on building business credit, streamlining operations, or exploring growth strategies, our business blog features articles with actionable insights on these and many other topics.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Ameris Bank is not affiliated with nor endorses the Internal Revenue Service (IRS), Dun & Bradstreet®, Experian™, or Equifax®.
Just like developing your business itself, building business credit is not something that happens overnight. It requires time, effort, and various strategies. Keep reading this Ameris Bank blog article for a step-by-step guide on best practices to build business credit.
What is a Business Credit Score?
Before we discuss the various ways to build business credit, it's essential first to clarify what a credit score is and how it is calculated. By understanding this information and monitoring your business credit score regularly, you can take proactive steps to improve your standing.A business credit score, often referred to as a commercial credit score, is a number that represents a company's creditworthiness. The three major credit bureaus, Dun & Bradstreet®, Experian™, and Equifax®, generate business credit scores using proprietary scoring methods. Factors that influence a business's credit score include payment history, the amount of outstanding debt, the length of credit history, and the types of credit the company uses.
Keep in mind that not all businesses have credit scores. Startup businesses need time to establish their scores, and incomplete or incorrect business information can prevent companies from obtaining credit scores.
Now, it's time to explain the steps for building business credit.
Step 1: Register Your Business and Get an EIN and D‑U‑N‑S® Number
In order for you to establish a business credit profile, you need to register your business with the appropriate state or local government agency. This involves filling out the necessary forms and paying any required fees. Once your business is registered, you can apply for an Employer Identification Number (EIN) through the IRS. An EIN is a nine-digit number that acts as a Social Security number for your business, allowing you to file taxes, open a business bank account, and hire employees.Next, you can apply for a D‑U‑N‑S® (Data Universal Numbering System) Number for free on the Dun & Bradstreet® website. D‑U‑N‑S® is a nine-digit identifier for businesses that establishes your company in the Dun & Bradstreet® database. A D‑U‑N‑S® Number can help you build business credit, apply for government contracts, and apply for federal funding.
Step 2: Get a Business Credit Card From Your Bank
Opening a business credit card is a great way to build your company's credit profile. You are streamlining your spending and creating a valuable financial history when you use the card for business purchases—such as office supplies, travel expenses, or inventory. Plus, consistent, responsible business credit card usage can lead to an improved credit score and higher credit limit.Ameris Bank offers several credit card options for businesses with various features and benefits. These include a Business Cash Preferred Card, Business Card, Small Business Rewards Card, and Business Real Rewards Card. We also offer two commercial card solutions, OneCard and OneCard Plus.
Step 3: Pay Your Company's Bills On Time
Paying your company's bills, invoices, and debt (e.g., business credit card payments and business loan payments) on time can help you build your credit. Additionally, taking the initiative to pay bills before their due dates reduces the risk of late fees and can favorably impact your credit score. Moreover, fully paying off debts—rather than just making minimum payments—further strengthens your credit standing.Establish a routine or system to keep track of due dates to ensure you pay your bills and meet your debt repayment obligations. One effective way to do this is to use your bank's bill pay system. Ameris Bank, for example, simplifies bill paying for our business customers. Customers can set one-time or recurring payments, receive reminders for upcoming payments, view invoices, check statements, and more—all from an easy-to-use online dashboard.
Step 4: Establish Trade Lines with Vendors and Suppliers
If your business regularly purchases goods, inventory, or equipment from vendors and suppliers, it is beneficial to establish trade lines with them. Trade credit enables you to pay vendors and suppliers after the products have been delivered. The payment due dates will depend on the agreed-upon terms. For example, if you have a net 30 trade line, you must pay the invoices within 30 days of receipt.You can build business credit by maintaining trade lines with vendors and suppliers and meeting your financial obligations on time. And when you build strong relationships with your vendors and suppliers, you may be able to secure better payment terms or discounts.
Step 5: Keep Your Credit Utilization Ratio at a Healthy Level
Keeping your company's credit utilization ratio at a healthy level is another strategy to build business credit. It shows lenders, vendors, suppliers, and potential investors that your business uses credit wisely and is not overly reliant on borrowed funds. To calculate your company’s credit utilization ratio, divide the total amount of credit your company uses by your company's total credit limit. For example, if your business has used $75,000 of credit and has a credit limit of $250,000, your credit utilization ratio is 30% ($75,000/$250,000).Ideally, it's recommended that businesses keep their credit utilization ratio ratio below 30%. If your company's ratio exceeds 30%, consider paying off your business credit card balance sooner or requesting an increased credit limit on your business credit card.
Step 6: Reduce Your Company's Debt Levels.
Keeping your company's debt to a minimum is another way to build business credit. This is often easier said than done, but here are several strategies to consider that can help make the process more manageable.
- Eliminate excess/unnecessary spending
- Consolidate high-interest debts
- Renegotiate loan/financing terms
- Negotiate payment terms with vendors and suppliers
- Manage inventory levels to reduce carrying costs
By carefully controlling debt, you enhance your overall credit profile and provide your business with a solid financial foundation. This allows for better cash flow management, minimizes financial risk, and can help you access capital with favorable interest rates and repayment terms.
Step 7: Check Your Business Credit Report
The age-old saying "knowledge is power" is especially true when it comes to knowing your business's credit score and profile. When you understand your company's credit standing, you can make informed financial decisions and address any issues that might hurt your credit score. To obtain a business credit report, you will need to pay a fee to the credit reporting agencies that offer business credit reports—Dun & Bradstreet®, Experian™, and Equifax®.Your business credit report will provide a top-level view of your company's financial health and creditworthiness. When you review your report, look for areas that can be improved. Pay close attention to your payment history, outstanding debts, and credit utilization. If you spot any errors or discrepancies that might affect your overall score, report them to the credit bureaus promptly and request their removal.
Whether you're seeking guidance on building business credit, streamlining operations, or exploring growth strategies, our business blog features articles with actionable insights on these and many other topics.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Ameris Bank is not affiliated with nor endorses the Internal Revenue Service (IRS), Dun & Bradstreet®, Experian™, or Equifax®.