How Does Business Credit Work: A Guide to Business Credit

Business Guides

Jacques Famy Jr
Review By Todd Millman

Business credit, also known as trade credit, is defined as any loan or line of credit to a company for a business purpose whereby those funds are used for a business purpose to conduct its operations. It's important to establish business credit as it is a very important component to the operations of a business throughout its life cycle, whether a new business or a well-established business; business credit is an essential tool that must be established and nurtured.

In this simple guide to business credit, let’s learn how a business credit score is calculated, how to establish business credit and build a business credit file, why it is important, and how to maintain and protect your business credit. By building business credit and maintaining good business credit, you will be able to access business financing more easily for products like long-term and short-term business loans, business lines of credit, business credit cards, and equipment financing.

How Does Business Credit Work and How Is It Calculated?

Lenders use a business’s financial history to create a “business credit score.” The better the score, the more likely the company will be granted a loan or credit. Economic history is pulled from several sources, such as: 

  • Public Records
  • Business entity accounts
  • Data furnishers like DataMerch and Paynet
  • UCC filings
  • Background checks
  • Small Business Financial Exchange and other merchant behavior sources

The Three Largest Business Credit Report Sources

1. Dun & Bradstreet/PayDex Business Credit Score: This score is generated by Dun and Bradstreet. They analyze a business' payment performance through any creditor that reports to D&B. Resulting in a numeric score ranging from 1 to 100, 100 representing the best performance.

PayDex Business Credit Score Infographic, How is credit score calculated

2. Experian Business Credit Score: Intelliscore Plus, akin to leading business credit cards with no annual fee such as the Ink Business Cash℠ Credit Card From Chase, utilizes an extensive range of trade, collection, public record, and firmographics (business demographics) data, functioning parallel to the credit scoring systems like Fair Isaac Corporation (FICO). This model provides inclusive information about small and medium-sized businesses.

  • Firmographics
  • Public records: judgments, liens, UCCs, and bankruptcies
  • Trade payment history
  • Financial payment history
  • Corporate family trees and identifying information for each business level
  • Small business owner and/or guarantors associated 
Experian Business Credit Score Infograhic, How is credit score calculated

3. Equifax Small Business Credit Score: It doesn’t have a fancy branded name for its business score model but uses firmographic data, public records, trade payment history, and small business information. It does not have a specific score but provides the necessary information to lenders to develop and establish business credit by developing their own risk score models and or scores.

Equifax Small Business Credit Score, How is credit score calculated

6 Steps to Establishing Business Credit Fast

Establishing business credit is critical for small business owners looking to secure financing, expand their operations, and build a reputable brand. However, building credit can be a slow and challenging process that requires time, effort, and a good credit history. Fortunately, there are specific steps that small business owners can take to establish business credit fast and access financing quickly.

Discover six essential steps for small business owners to establish business credit for the first time and achieve their financing goals.

1. Register your legal business name (business entity)

Form your legal business name as a Limited Liability Company (LLC) or Corporation and file with the Domestic State that you are choosing to base your business on. While doing this, be aware of the account option that involves providing both a mailing and physical address when applying. This is a common step that most businesses will encounter during registration.

Many business owners make the mistake of not properly registering their business entity and opening up their business as a sole proprietor, which is NOT a good idea if you’re building business credit reports for your business. Whether you file as a corporation or Limited Liability Company it won't matter to your business credit profile. Filling out the application form responsibly can resemble the process you would follow with a bank.

2. Obtain a Federal Employer Identification Number (FEIN) or (EIN) (aka TAX ID)

A FEIN number is a Federal Employer Identification Number when starting a business to file taxes and payroll for employees. A Federal Employer Identification Number (EIN) is NOT your Social Security Number. The following is a link to establish an EIN number. This allows a lender to search business records for credit histories.

3. Open a business bank account

A Business checking account in the legal business name will allow you to separate business and personal as well as provide you with the necessary documentation for a future business credit application. During this process, you will need to input details such as your company's name, business type, and contact information including your correct address.

Any erroneous data, like an incorrect address, could potentially hinder your ability to grow a paydex score. Business financing products will solely review business bank statements, and not personal ones when making a credit decision on business loans and/or business lines of credit. It's important to ensure all provided data, especially address, is kept accurate and updated for seamless financial transactions.

4. Open a business credit card

A business credit card is a great way to start and establish business credit and access capital. For instance, the American Express® Business Gold Card is one such card that rewards with 4 points per dollar for the first $150,000 in combined purchases each calendar year, catering to evolving business expenses.

When deciding to open a business bank account, it's paramount to also inquire for a business credit card simultaneously, keeping a sharp eye on the different payment terms.

Owning a business is a prerequisite for getting a business credit card; however, you can also apply as a startup. If your bank does not extend small business cards, online comparison companies such as and, or renowned credit card company like Capital One can be an alternative. It is essential to compare interest rates and payment terms for the best deal and heedful management of your purchases is advisable to avoid overextension.

5. Establish business credit history with vendors and/or suppliers

As soon as possible, ask your vendors for credit terms net 30 days or more credit lines for billing if they report to business credit reporting agencies. Remember, in order to list on the credit bureaus and establish a business credit file, an LLC just doesn't need a solid credit history, but also requires a minimum amount of paid-in capital and an annual asset turnover rate.

A business phone line is indeed a form of credit that can accrue bonus points in building your business credit in the early stages of your company. Maintaining a consistent order cycle with your vendors can also further promote a positive credit profile.

6. Register your business with internet directories

Business leaders now search the internet mining for information about the business such as social media, Google listing, business directories, and business review companies like Yelp, and Trip Advisor. Manta, etc. There are companies like that can assist you in listing your business in multiple registries. Also don't forget to establish a business phone number. A business phone line will help you build legitimacy.

How to Maintain Business Credit

Maintaining a strong business credit score is crucial for small business owners seeking to secure financing, negotiate favorable terms with vendors, and grow their businesses. However, building and maintaining good business credit requires consistent effort and attention to detail.

1. Pay your bills on time all the time

This is the most obvious and most important advice when it comes to maintaining excellent business credit, but it never hurts to state the obvious. Being able to show a recent track record of being able to pay business bills on a consistent basis is a must. If you have no established recent credit, then your business credit profile will be viewed as higher risk. No credit is bad credit.

2. Monitor your personal credit reports and business credit reports

If you are diligent about monitoring both personal and business credit reports and files; you can catch errors and/or fraudulent activity more readily. This can also help you utilize credit scoring effectively as a tool to maintain and improve your overall credit rating.

Notable credit reporting agencies like Fair Isaac Corporation (FICO) and Small Business Scoring Service (SBSS) Score, can provide score ranges from 0-300 and 300-850 respectively. Other services from experienced agencies like Experian and Dun & Bradstreet allow you to monitor business credit files for a nominal fee; keeping a keen eye on your credit scores and business credit report is a valuable safety net. Ensure you make it a priority as it can influence your creditworthiness significantly in the long run.

3. Separate business and personal

Never mix your personal expenses with business expenses. Business debts should be just business expenses. Using your business bank account as a personal piggy bank can be a fatal mistake and lead to tax problems or, in some cases, financial ruin. This is not to be confused with the fact that there may be times when business owners will need to lend to the business capital during cash flow crunches, but the business should never lend to the owner.

Personal credit history and credit scores will also be a tool creditors will use when evaluating the business for a small business loan or line of credit and may impact interest rates and credit terms.

4. File and pay taxes on time

It is the responsibility of the owner to pay the business’ taxes on time. Pay and file your State and Federal tax forms on time without delay. Failing to do so may count against you when applying for business financing and create a snowball effect of future credit issues.

5. Continue to open business credit lines with vendors and suppliers

Build business credit. When it comes to business credit lines with vendors and/or suppliers, there is no such thing as too many. These are bills that are usually paid net 30 to net 60 and show the ability of the business to manage expenses.

6. Do not overextend business with short-term business loans and other debt

With the massive growth of short-term business loans and business funding opinions for small businesses in the last ten years, there has been an increase in abuse. Watch your business credit utilization.

Short-term business loans are a great new product providing access to business owners in the past that were not accessible to them, but be careful, if you put too much debt onto the business with payments that are not affordable, it can put the business in serious credit difficulty.

As a rule of thumb, business loan payments should not exceed more than 10 to 15% of your monthly gross sales deposits of the business. This is a general rule and not always applicable depending on the profit margins of the business, use of funds, and/or the potential return on the investment of obtaining the short-term loan. Calculate your profit/loss and balance sheet when making these decisions.

Common Questions About Business Credit

1. What is a Business Credit Score?

Unlike personal credit, which has three clear credit bureaus, Equifax, Experian, and Trans Union, which produce a known and established FICO score, Business Credit is not as clearly defined as a specific score like personal credit. Business Credit is derived by using an overall evaluation of many different sources. Many business lenders create their own “business score” based on Public Records County and State Searches (Liens, Judgements, Bankruptcies), Data Furnishers (DataMerch, Paynet), UCC Filings (Financial notices placed on a business when receiving financing on business), Internet mining/searches for information about the businesses activities, Owner and Business Background checks, and Small Business Financial Exchange and other bad merchant behavior sources.

2. What are Good Business Credit Scores?

There is no actual business credit score that is universally accepted like personal credit FICO scores are. Business leaders build their own credit scores using a variety of sources. Maintaining good pay histories with business suppliers and/or vendors, establishing business credit cards, and always paying business debt on time is the best way to keep proper business credit.

3. How Do I Build Up My Business Credit Without Using My Personal Credit? How can I build my business credit fast?

Contact your suppliers and vendors and if you don’t already have net 30, or net 60 payment arrangements ask for them. Also, ask if they report to business credit sources like Dun & Bradstreet, Experian Business Credit, or Equifax Business Credit.

4. Do I need to contact Dun Bradstreet to establish a Duns number?

It is a good idea to contact Dun Bradstreet to establish a Dun's identification number when you establish your business name as a Limited Liability Company or Corporation. Getting a number is the first step to building your business credit with Dun Bradstreet.

5. Does Personal Credit Affect Business Credit? Is business credit based on personal credit?

Your personal credit will impact your business credit far more than your business credit will ever impact any personal financing you’re trying to acquire. A lot of business loan products look at the business owner’s personal credit to determine creditworthiness because the lender is trying to establish the credit behavior of the owner. A business owner’s personal credit will impact business financing offers. Personal credit cards, personal auto financing, and mortgages sometimes will request income verifications that may include business financial statements such as business bank statements and business tax returns, so keep that in mind.

6. Does personal credit scores matter when getting a business loan?

Your individual credit profile does matter. Make sure you monitor your credit file, credit report, and credit score, and contact every credit bureau that offers to monitor of credit reports.

The Bottom Line: How to Establish Business Credit

Establishing business credit will help you secure better terms with your vendors and suppliers to secure better terms when the time comes when you need business financing for working capital, equipment, expansion, or other business opportunities.

An excellent business credit rating will help you save money, keep the cash flow of the business healthy, or help obtain assets to help the company grow. Having bad business credit will limit your ability to obtain business financing in the future. did a study called the Small Business American Dream Gap Report found that small business owners who understand their business credit rating were 41% more likely to get approved for a loan and yet 82% of business owners did not know how to interpret their business credit rating.

Business credit is a lot like health care; no one is more responsible for your personal health and well-being as an adult than you. As a business owner, it’s essential to manage and monitor all financial aspects of the business, so you get great business health outcomes. A great business credit rating will help you create a business that is at the top of its potential and keep it in the best financial health possible for whatever needs come down the road.

Small Business American Dream Gap Report

Jacques Famy Jr

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