Establishing business credit is similar to establishing personal credit. One of the main differences is that business credit is more of a manual process rather than automated. While establishing business credit takes a little more effort, it shouldn’t dissuade you building up your business credit. In this article, we’ll show you the ins and outs of business credit and why you should establish credit for your business.

Why do I need business credit?

Just as personal credit allows merchants to decide on whether or not to extend credit, business credit does the same. The quality of your credit also determines the terms of any loan or line of credit. Business credit scores are rated from 0 to 100 for Dun & Bradstreet and Experian, with 100 being exceptional. FICO scores range from 0 - 300. Just like a personal credit score, the higher, the better, and the more opportunities you’ll have.

A business credit score impacts your ability to get business insurance, trade credit, and the rate of interest you’ll receive for business financing. That’s why it is important to establish business credit and maintain it.

Trade credit refers to merchants extending credit to you directly. In other words, these merchants aren’t issuing a credit card to your business. They’re allowing you to pay on terms by invoicing for services rendered or products sold with payment due some days later. Each business will have a different credit approval process, but should follow similar standards.

As mentioned in the introduction, establishing business credit is a manual process. The next two sections cover what this process entails.

Setting up your business credit profile

We’ll assume you’ve also created a federal tax employer identification number (EIN) for your business. If not, just head over to the IRS's website. Next is to create your business credit profile at each credit bureau.

When you open a personal credit account, it is automatically reported to all three credit bureaus. This is not something you need to do. Your credit profile is automatically created.

With business credit, you must go to each credit bureau and create a credit profile. Here are the four business credit bureaus:

Setting up your business credit profile at each of the above four credit bureaus will take time as each one has a different process. Simply do them one at a time.

Why do you need to create a profile at each bureau? All merchant do not report to the same credit bureau. If you want, you can first create profiles at Dun & Bradstreet and Experian, the two most popular business credit bureaus. Then, as you come across merchants who report to the other credit bureaus, you can set up those profiles.

Once your credit profiles are established, you need to start actually establishing business credit. That’s done by having vendors, merchants, and suppliers all report your payments to the credit bureaus.

Getting vendors to report your payments

Unfortunately, there is no automatic reporting of your payments with different trade accounts to business credit bureaus. Merchants must manually submit your payments for them to appear on your credit report.

Whether a merchant reports your payment history to the credit bureaus may be a deciding factor in choosing that merchant. If many of the merchants with whom you work with business credit reports to determine credit worthiness of businesses, having your payment history reported is of high importance. Any merchant who doesn’t want to report your payment history may be a merchant with whom you don’t want to do business.

Once a merchant has agreed to submit your payment history, find out how often he/she plans to submit and to which bureau. This information will allow you to check your business report to confirm payment histories are being submitted. The merchant has an incentive to submit your reports since it can mean continued business with you.

Additional tips for establishing business credit

Even if you are a new business, opening a business credit card account will help to establish business credit. Unlike with trade accounts, many credit card companies will report your payment history to the credit bureaus without any prodding. Be sure to check which credit bureaus to which they report and that you have a credit profile with that bureau.

On-time payments are the crux of good credit, both for personal and business credit. If you have a credit card, setting up autopay will ensure you at least make the minimum payment every time. For trade accounts, you’ll have to be more vigilant in paying invoices before their due date. Develop a system that sets up reminders to pay the invoice on time. Your A/R department can do this for every invoice that arrives. For those that don’t exceed a certain dollar amount, they can be paid immediately. Also, check what discount merchants may be offering for early payments, which is just another benefit of good payment practices.