Business Management

How Does Business Credit Work: A Simple Guide to Establishing and Maintaining Business Credit

Last updated on March 24, 2020

Jacques Famy Jr

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. Establishing business credit is a very important component to the operations of a business throughout its life cycle, whether a new business or 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 and build business credit, why it is important, and how to maintain and protect your business credit. By maintaining good business credit, you will be able to access business financing more easily 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?

Unlike personal credit, which has three clear credit bureaus, Equifax, Experian, and Trans Union, which produces 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 the following sources of business information; 

  1. Public Records County and State Search (Liens, Judgements, Bankruptcies)
  2. Data Furnishers (DataMerch, Paynet)
  3. UCC Filings (Financial notices placed on business when receiving financing on business)
  4. Internet mining/searches for information about the businesses activities
  5. Business Owner and Business Background checks
  6. Small Business Financial Exchange and other bad merchant behavior sources

The Three Largest Business Credit Sources

Dun & Bradstreet/PayDex score: This score is generated by Dun and Bradstreet,  and it analyzes business’ payment performance from any creditor that reports to D&B and gives a numeric score from 1 to 100, 100 being the best performance.  

Image source: Dun & Bradstreet

Experian Business: Intelliscore Plus derives its score using a wide range of trade, collection, public record, and firmographic (business demographics) data, which includes extensive information about small and medium-sized businesses. 

Source: Equifax

Equifax Small Business: 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 owner information. It does not have a specific score but provides the necessary information to lenders to develop their own risk score models and or scores.

Source: Equifax

How to Establish and Build Business Credit: 6 Steps to Build Business Credit

  1. Register your business-Form your business as an LLC or Corporation and file with the Domestic State that you are choosing to base your business in. Many business owners make the mistake of not properly registering your business and open up your business as a sole proprietor, which is NOT a good idea if you’re trying to establish credit for your business.
  2. Obtain a FEIN number (aka TAX ID)-An FEIN number is a Federal Employment Identification Number when starting a business to file taxes and payroll for employees. The following is a link to establish a FEIN number This allows creditors to search business records for credit histories.
  3. Open a business bank account-A Business bank account will allow you to separate personal from business and provide you the necessary documentation for a future business credit application. Business financing products will only look at business bank statements and not personal when making a credit decision on business loans and/or business lines of credit.
  4. Open a business credit card-A business credit card is a great way to start and establish business credit. When choosing to open a business bank account also ask for a business credit card at the same time.
  5. Establish credit with vendors and/or suppliers– As soon as possible, ask your vendors for net 30 days or more credit lines for billing if they report to business credit reporting agencies. This will help establish additional business credit.
  6. Register your business with internet directories-Business lenders now search the internet mining for information about the business such as social media, Google listing, business directories, and business review companies like Yelp, Trip advisor. Manta, etc. There are companies like that can assist you in listing your business in multiple registries. 

How to Maintain Excellent Business Credit

  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 will be viewed as a higher risk. No credit history is bad credit history.
  2. Monitor your personal credit and business credit-If you are diligent about monitoring both personal and business credit; you can catch errors and/or fraudulent activity more readily. Also, you can make sure that you have enough trade lines reporting to help you have current pay histories and maintain and grow your credit rating. Experian and Dun & Bradstreet provide services that help you monitor that you can sign up for a nominal fee. 
  3. Separate personal from business-Never mix your personal expenses with business expenses. Business debts should be just that 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 business owner.
  4. File and pay taxes on time-It is the responsibility of the business 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-When it comes to business credit lines with vendors and/or suppliers, there is no show 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-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 by business owners. 

Short-term business loans are a great new product providing access to business owners in the past 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

What is a Business Credit Score?

Unlike personal credit, which has three clear credit bureaus, Equifax, Experian, and Trans Union, which produces 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 Search (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, Business Owner and Business Background checks, and Small Business Financial Exchange and other bad merchant behavior sources.  

What is a Good Business Credit Score?

There is no actual business credit score that is universally accepted like personal credit FICO scores are. Business lenders 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.

How Do I Build Up My Business Credit Without Using My Personal Credit?

Contact your suppliers and vendors and if you don’t already have net 30, 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. 

Does Personal Credit Affect Business 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 credit worthiness because the lender is trying to establish the credit behavior of the business 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.

The Bottom Line When it Comes to Business Credit

Establishing good 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 there 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. 


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