Building Your Business How to Build Business Credit Learn how good credit can lead to business success By Lisa Jo Rudy Lisa Jo Rudy Website Lisa Jo Rudy covers entrepreneurship and small business finance and terms for The Balance. During her career, Lisa launched her own small writing and instructional design business and writes about business for major web publishers such as Harvard Business Publishing. As a teacher and instructional designer, Lisa has created business-related tutorials and interactive courses for universities, educational publishers, and students and adults entering the business world. learn about our editorial policies Updated on June 30, 2022 Reviewed by Khadija Khartit Reviewed by Khadija Khartit Twitter Website Khadija Khartit is a strategy, investment, and funding expert, and an educator of fintech and strategic finance in top universities. She has been an investor, entrepreneur, and advisor for more than 25 years. She is a FINRA Series 7, 63, and 66 license holder. learn about our financial review board Share Tweet Pin Email In This Article View All In This Article What Is Business Credit? How Business Credit Works What Impacts Business Credit? Register Your Business Open Business Accounts Pay Your Vendors Track Your Business Budget & Credit Business Structure Impact on Credit Business Credit FAQs Photo: AsiaVision / Getty Images Let’s say you’re starting your own café. You’ve created your menu, hired your staff, and found a great location. You even have seed money to pay for equipment and the first few months’ rent, utilities, and wages. However, to effectively and successfully manage your restaurant's financials, you’ll need credit. Without it, you’ll have to use whatever cash you have on hand to pay expenses as they come up—even before you’ve had a chance to earn any money selling your coffees, scones, and croissants. Worse off is that your cash might not be enough to support your growth especially when the business is successful. Growing businesses need time to produce positive cash flows. With credit, your vendors and service providers will trust that you can pay, which means you’ll be able to run your business. Below, we’ll discuss why business credit is so important, how a good credit rating can boost your business, and the simple steps to help fund and expand your operations. Key Takeaways Business credit is essential to almost all businesses of any size.Credit allows you to buy the products and services you need even when you don’t have cash on hand.Business credit isn’t automatic; it has to be built over time—much like personal credit.The first steps include getting EIN and DUNS numbers, opening a business bank account, and signing up for business credit cards. What Is Business Credit? Credit is the power to purchase goods and services without the cash on hand to pay for them. Credit is extended when the creditor trusts the buyer will pay the full amount agreed upon on time. Business credit can, for example, make it possible for you to open a restaurant, which would likely be much more challenging if you were relying entirely on money out of pocket. There are several forms of business credit, including: Small business loans Business credit cards Vendor credit (credit that vendors and suppliers extend to trusted customers) Note Most businesses need credit to cover day-to-day operational expenses, purchase inventory, and obtain capital they would need to expand and grow. How Business Credit Works Let’s say you own a hat business and you need raw materials and other goods to make the products you sell. You can’t make money on the hats you’re going to sell until you’ve designed and manufactured them. However, you won’t have money to pay for the design and production of hats until you’ve sold them. If you have business credit, though, you can pay later for the hats you manufacture today; without it, it can be difficult to move forward at all. Once your hat business starts to succeed, your credit can help open the door to success. Your reputation with vendors can help you buy more supplies, your business bank account can give you access to a line of credit, and your good credit can give you greater access to loans. What Impacts Business Credit? In most cases, your personal credit can impact your ability to build business credit because banks and credit card issuers will look at both your business and personal credit histories. However, if you have paid off loans for your own car, house, and education (or continue to pay them off on time), you have a headstart as you begin building business credit. Assuming your personal credit is in pretty good shape, to build business credit, you’ll need to follow a few key steps: Establish your business with its own name, address, and phone number Register your business with the IRS and Dun & Bradstreet Open business accounts with credit card companies Establish credit terms with your regular vendors Pay your bills on time or even early Keep a close eye on your business credit ratings and scores Note As you build credit, it’s important to avoid missteps that can have a negative impact. For example, a few late payments can make it more difficult to get the credit you need from key vendors. Register Your Business Until your business exists as its own entity, you can’t establish business credit. This is easy to do, even if you are a sole proprietorship. Start by setting up a name, address, phone number, and email domain for your business. Register your business with the IRS to obtain an employer identification number (EIN) as well as with credit reporting bureau Dun & Bradstreet. Registering for an EIN Number An EIN is a nine-digit set of unique numbers assigned to your company and used by the IRS to identify your business for tax-related purposes. With an EIN, you officially separate yourself from your business because you, as an individual, are identified through your Social Security number (SSN). Note Unless you operate as a sole proprietor or single-member limited liability company (LLC), an EIN is required if you want to open a business bank account, take out a business loan, or own a business credit card. It’s fairly easy to get an EIN number; simply go to the IRS website, choose the type of corporation you own, and fill in the paperwork. Registering for a Dun & Bradstreet Number Dun & Bradstreet is a credit reporting bureau that provides information to lenders and other businesses. To do this, the firm uses a data universal numbering system (DUNS) number, a unique nine-digit identifier it provides to businesses. Much like an EIN number, the DUNS number is a way to identify your business as an entity separate from you as an individual. More importantly, it’s the number used by lenders and potential business partners to determine whether your business is reliable and financially stable. The U.S. government also requires businesses to have a DUNS number to apply for grants or do business directly with government agencies. You can request a DUNS number online and the process is free. Open Business Accounts Once you’re all set with your address and EIN and/or DUNS number, you’re ready to start opening business bank accounts. Whether you choose credit cards, bank accounts, or both, you will immediately start building your credit. Bank Accounts Business bank accounts offer a number of perks that personal accounts don’t. For example, they give you purchasing power, allow debit and credit card transactions, and may come with a line of credit and offer personal liability protection. But it’s important to note that banks don’t offer business accounts to just anyone. You have to apply for an account (usually online) and may have to provide: Your EIN number (or SSN for a sole proprietorship)Business formation documentsBusiness license if neededAny ownership agreements you have Credit Cards It is possible to apply for a business credit card using only your business EIN number. In theory, this helps to separate your business from your personal credit, and there are a few companies that offer EIN-only credit cards. The reality, however, is that most credit card companies will ask for your SSN—and will check your personal credit before issuing a card. Note If you have concerns about your personal credit history, consider working toward improving your personal credit score before applying for a business credit card by, for example, paying bills on time, decreasing credit utilization rate, and promptly paying down credit card balances. Pay Your Vendors Most businesses depend on vendors and suppliers, and you’ll want to establish positive relationships as soon as possible. That means paying your vendors on time, every time. Depending on your business, some of the vendors you’ll be working with include: Businesses that provide raw materials for your productsBusiness supply vendors who keep paper in your copiers Product suppliers who provide the products you sell in your shopManufacturers who actually make the products you design Once you’ve established a positive relationship, you can start to think about establishing credit with your vendors. The better your relationship with your vendors, the better their reviews will be—and the stronger your credit will be. Track Your Business Budget and Credit As your business gets underway, you’ll need to manage and track both your spending and your revenue. In addition, you’ll need to monitor and manage your credit rating. Both will be important for keeping your credit high and avoiding potential issues. To manage your business budget, you’ll need to separate your business and personal finances. This is relatively simple if you’ve already created business bank accounts and applied for business credit cards. To manage your credit, you’ll need to purchase credit reports from firms such as Dun & Bradstreet and Experian. While these reports are not free, they are extremely useful because they provide you with information about: The accuracy of your credit reportsAny changes to your report that could impact your businessAny opportunities to improve your creditPossible identity theftPeople and organizations that are inquiring about your credit How Business Structure Impacts Credit If your small business is an LLC, an S corporation, or a C corporation, it’s relatively easy to separate business from personal credit. However, as mentioned, banks and credit reporting agencies are very likely to ask for your SSN to double check your personal credit before issuing business credit. If you are a sole proprietor who does not have employees or particular types of assets, you do have the option of using your SSN as your credit identifier in every situation. If you do, your personal credit will be the only way an agency can determine whether you are creditworthy. Even if you are a sole proprietor, you should establish a bank account in your business’s name to separate your finances. What Is the Fastest Way to Build Business Credit? To build business credit, start by establishing your business as a unique entity with its own name and address. Register your business with both the IRS to obtain an EIN and with Dun & Bradstreet for a unique DUNS number. Next, apply for business credit cards and bank accounts. Can I Build Business Credit If I Have Bad Personal Credit? Yes, you can build business credit if you have bad personal credit—but it isn’t easy. That’s because most banks and credit card companies typically ask for your SSN before offering credit. Your best bet is to repair your personal credit before applying for business credit. Another option is to apply for business credit cards that accept your company EIN and do not require an SSN. How Do I Check My Business Credit Score? You can check your business credit score by buying reports from Dun & Bradstreet and credit reporting agencies such as Experian and Equifax. These reports are not free, but they provide very important financial information. Free credit reports are primarily available to consumers instead of businesses. What Is a Good Business Credit Score? Each of the business credit agencies uses a different scoring system. However, the Federal Reserve’s 2021 Small Business Credit Survey lists an 80-100 business credit score as a “low credit risk.” However, you may see different numbers depending on the credit reporting agency you check with. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. U.S. Small Business Administration. "How To Establish Business Credit for the First Time." Internal Revenue Service. "Obtaining a DUNS Number: A Guide for Federal Grant and Cooperative Agreement Applicants." U.S. Small Business Administration. "How To Open a Business Bank Account." Fed Small Business. "Small Business Credit Survey: 2021 Report on Employer Firms." Page 22.