Home Finance The Complete Guide to Building a Spectacular Business Credit Score

The Complete Guide to Building a Spectacular Business Credit Score

15 min read
business credit score

Are you having a hard time getting approved for a business loan? Are you about to change your middle name to rejection?

If it feels impossible to get approved for a loan, your business credit score might be the problem.

Lots of new business owners are unaware of their poor business credit score (or complete lack of credit score) until they apply for a loan and get denied.

If you need help improving your business’s credit score, keep reading.

Listed below are some strategies that will help you raise it to increase your chances of getting approved for a loan in the future.

Business Credit Score vs. Personal Credit Score

Many people don’t realize that their business credit score is separate from their personal credit score.

There are some important differences between these two scores, though, including the following:

  • Personal credit is connected by your Social Security number
  • Business credit is connected by your Employer Identification Number or your Tax ID Number
  • You need an Employer Identification Number to establish business credit and apply for business
  • It’s easier to apply for a business loan if you have an EIN
  • Personal credit is curated by three credit bureaus (Equifax, Transunion, and Experian)
  • Business credit is curated by Experian, Equifax, and other credit reporting services like Dun & Bradstreet, which gives businesses a PAYDEX Score (similar to a FICO score)
  • Fewer variables influence business credit than influence personal credit
  • There are fewer legal protections for your business credit score

It’s important to note, too, that it’s harder to dispute errors on your business credit report.

Factors that Influence Your Business Credit Score

There aren’t as many factors that influence your business credit score as there are factors that influence your personal credit score.

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It’s still important to understand the factors that make up your business credit score, which include the following:

  • The number of years you’ve been in business
  • The lines of credit you’ve applied for in the last nine months
  • The lines of credit you’ve opened and used in the last six months
  • Collections accounts or tax liens from the last seven years

Your business credit score is also determined by your payment history and how often you make loan and credit card payments on time.

How to Improve Your Business Credit Score

Now that you know more about what influences your business credit score, it’s time to start working on improving or establishing your credit score.

Keep these tips in mind whether you’re a new business looking to establish a credit score or if you need help raising your credit score:

Obtain an EIN

It’s much easier to get approved for a business loan if you have an Employer Identification Number. You can also increase your chances of qualifying for a business credit card if you have this number.

Make getting one a top priority, especially if your business is just getting started.

Apply for a Business Credit Card

Speaking of business credit cards, a business credit will help you start building credit.

It’s easier to get a credit card than a loan, too, so it’s a great starting point for new business owners.

Try to find a low-interest credit card that has a decent rewards and cashback program, too.

Maintain Your Personal Credit Score

Just because you’re working on building a good business credit score, that doesn’t mean you should let your personal credit score fall by the wayside.

If you run a very small business, lenders might look at both your personal credit score and your business credit score, so it pays to keep both of them as high as possible.

Choose the Right Lenders

Be very particular about the type of lenders you work with. Try to find lenders that specialize in working with small businesses or startups and can help you improve your business credit score.

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Steer clear of payday lenders, too. They don’t report your payments to credit bureaus, so borrowing from them won’t help you build your credit score.

Choose the Right Vendors

Be sure to choose the right vendors, too. Open accounts with vendors that report your on-time payments to credit bureaus. This will help you ensure that your payments are helping to build up your credit score.

Keep Your Credit Balance Low

When you’re trying to build your credit score (business or personal), make sure you’re keeping your balance as low as possible. Don’t charge more than you can afford to pay off and keep your utilization low.

Make Payments on Time

Make sure you’re making your payments on time, too. This is one of the most important things you can do to make sure you build (or maintain) a good business credit score and improve your chances of getting approved for a business loan.

Build Credit with Fixed and Variable Expenses

Use both fixed expenses (insurance premiums, rent, etc.) and variable expenses (marketing costs, advertising costs, etc.) to build up your business credit.

Basically, it’s a good idea to vary the types of purchases you’re paying for with your business credit card.

Monitor Your Credit

Keep an eye on your business credit score. Check it on a regular basis to make sure it’s moving in the direction you want it to go. This will help you catch errors more quickly, too.

Avoid Applying for Too Many Loans

Finally, make sure you’re not applying for too many business loans or credit cards at one time. Every time you apply, the lender will perform a hard credit check. This negatively affects your credit score and can cause it to drop by several points.

Need More Business Finance Information?

As you can see, there’s a lot that goes into building a good business credit score.

It’s not easy to improve your credit score, but it can definitely be done, especially if you keep these tips in mind.

We’ve got tons of helpful articles here on everything from getting loans to effective fundraising.

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