- How is business credit measured?
- How can you check your business credit?
- The easiest way to build business credit
Q: What’s the difference between business and personal credit? How can I effectively build business credit?
A: Business credit functions similarly to personal credit, except where personal credit uses your social security number; business credit uses your company’s employer identification number. The best way to build business credit is to pay bills on time, never overextend yourself on credit cards or loans, and utilize services designed to help you build business credit.
Considering the influx of remote and hybrid workstyles and the streamlined ease with which entrepreneurs can start businesses, an unsurprising number of business owners struggle with learning how to build business credit.
When starting from zero, building strong enough business credit to get loans and lines of credit may be frightening, but it’s not nearly as difficult as you might anticipate.
The sheer number of credit bureaus, lenders, and other resources can be overwhelming at first, especially if you’re unsure where to look.
That said, having a solid business credit profile pays dividends toward your company’s success.
Not only will good business credit help you get better rates on loans and lines of credit, but you’ll be able to deal with professional and well-known lenders instead of relying on sketchy online services.
Attractive interest rates and low fees are just one aspect of the benefits that good business credit provides. Outside of the financial benefit, good credit helps your company appear legitimate and shows potential investors, clients, and even customers, that you’re serious about your operations.
Whether you’re ensuring you stay below 30% of your credit limit, paying bills on time, using services to build business credit, or a combination of the three, there are countless methods to create a robust business credit profile.
We’ll be exploring how your business credit is measured, how you can monitor your business credit, the easiest way to build business credit, the easiest way to build business credit without personal credit being affected, and lastly, how to use Alliance’s services to build business credit.
If you’re searching for ways to build business credit with EIN only, you’re in the right spot. Keep reading for an answer to the question, “What is business credit?”
- How is business credit measured?
- How can you check your business credit?
- The easiest way to build business credit
How is business credit measured?
Instead of immediately trying to teach you how to build business credit with Uline or another service, let’s take a moment to explain the difference between a small business loan and a small business line of credit.
A small business loan is a lump sum of money that you receive all at once and immediately begin making payments on.
Typically, businesses will utilize loans if they have one or more large purchases that need to be made, but they don’t have access to the capital to do so.
A small business line of credit is more flexible. Rather than giving your business a lump sum all at once, a line of credit is a set amount of capital your company has access to.
This way, you can pull from your line of credit as needed. Lines of credit are good because they ensure you’re never without access to capital while simultaneously helping you build business credit through payments and other fees.
The interest rates of a loan will typically be lower than the interest rates on a line of credit, but lines of credit are slightly safer and better for your business long-term, especially if you’re conscious about your credit limit.
Essentially, loans and lines of credit are two of the most common uses for a good business credit profile. With solid credit, the terms of these lending options are much better.
Now that you understand the key differences between loans and lines of credit, let’s look at the credit bureaus that dictate business credit scores.
Business credit is graded by three main credit bureaus. These bureaus are Dun and Bradstreet, Experian, and Equifax.
Dun & Bradstreet is the oldest of the three main credit bureaus, and your credit score from D&B is likely the one that banks will take the most seriously. It’s difficult to find the exact date of D&B’s inception, but the Library of Congress has traced the company as far back as July 1841.
One of D&B’s greatest contributions to business credit is the D-U-N-S number. Like your EIN, your D-U-N-S number signifies your addition to the D&B database and is used to track your business’s credit profile.
Getting a D-U-N-S number is many entrepreneurs’ first step toward building a robust credit profile.
Equifax is the second oldest of the main bureaus. Launched in 1899, originally under a different name, Equifax isn’t used as frequently by credit issuers and trade vendors as the other two bureaus, so your Equifax credit report will be used for loans more than lines of credit.
On its website, Experian claims its roots go back as far as the early 1800s, but by standard metrics, it’s the newest of the main credit bureaus. Experian is similar to D&B in that normal lenders and trade vendors tend to default to one of the two for their credit checks.
Another of Experian’s claims to fame is that they launched their Experian Boost program in 2019, allowing businesses to use recurring payments to help bolster their credit.
These three credit bureaus each play an important role, and each can help you build business credit in their own right.
But how is your credit measured? Let’s look.
Information about your business’s finances is reported to these bureaus.
The bureaus then create a credit report for your business that banks and financial institutions use as a risk assessment.
These are the factors reported and monitored.
- Upper credit limit
- Lenders want to ensure you’re not maxing out all your credit cards or lines of credit. Using too much of your available credit will harm your business’s credit profile and make it harder for you to build business credit.
- A good rule of thumb is to use about 30% of your available credit at most.
- How much you currently owe
- Lenders also want to ensure you’re not in debt more than they realize. If you owe too much money to other lenders or have too many loans taken out, you’re actively harming your business credit.
- How much is past-due
- If you’re late on several payments and your debt is piling up, you won’t get a good score. Past-due payments look bad for your business because it sends the message that you’re not worried about paying back the entities that have lent you money.
- Past-due payments are one of the fastest ways to drop your business credit.
- Details on past payments
- Even if you’re not in debt at the moment, lenders want to know how your previous loans and lines of credit have gone. If you have a history of neglecting to pay your debts or countless late payments in the past, your business credit will suffer.
- The terms of each account
- Lenders want to see the terms of each account to ensure that you aren’t being bled dry by another lender. Creditworthiness refers to how likely you are to repay your debts, so if you’ve taken bad loans with bad interest rates and fees, that may negatively affect your ability to pay back new lenders.
As you can see, a lot of thought goes into your business credit report.
Keep in mind, you need to focus on all the factors monitored and reported; you can’t just pick and choose the easy ones.
For example, if you’re not using much of your credit limit but you’re still massively in debt to other lenders, you won’t be saved by your responsible credit use.
It’s paramount to your business credit profile to take each factor as seriously as possible and to do your best to make payments on time, keep your credit limit responsible, and be as financially intelligent as possible.
Once you’ve started to build your business credit, you’ll need to make sure that you’re regularly checking it to prevent any mistakes.
How can you check your business credit?
Unfortunately, you can’t just rely on these credit bureaus to handle your credit checking. An important aspect of learning how to build business credit is understanding that you need to regularly check your credit report to ensure nothing’s been misreported.
These errors could be as simple as a mislabeled loan or line of credit, unreported payments, or mishandled payroll loans. Credit bureaus and the vendors reporting your payments make mistakes sometimes, and it’s much easier to fix these mistakes when they happen rather than waiting until you’re in a position where you need to fix your credit.
The best way to check your business credit profile is by getting a report from one of the three main credit bureaus.
Each of the three major bureaus offers its own credit score, and each score will vary slightly.
Experian and D&B are used most often for lines of credit, be it from traditional lenders or trade vendors. Equifax is used most often for SBA loans.
That said, the scores will all be influenced in similar ways, meaning if one credit score increases, there’s a strong likelihood that your other scores will too.
Below, we’ve put together a small list of some other reasons you should regularly check your credit score outside of simply checking for accuracy. As you can see, a lot could go wrong, and keeping your information as correct as possible pays dividends over time.
- Fraud detection
- By regularly monitoring your business credit profile, you can identify any irregular or fraudulent activity before it directly affects your company.
- Fraudulent activity may look like trade lines you don’t recognize, unauthorized credit inquiries, or even accounts you’ve never opened. Staying on top of your credit report will help prevent any of these problems from becoming pervasive.
- Outsider perception
- Because lenders and banks rely so heavily on your credit profile, it’s beneficial to stay up to date on the information to see how your business is being perceived at any given time.
- This will also help you identify areas you’re lacking in and, if you’re checking regularly enough, can help you prepare for loan or line of credit requests by telling you when to start focusing on building credit.
- Early warnings
- Keeping a close eye on your business credit profile can help you identify problems before they become unbearable. A sudden drop in your credit score or negative information being reported could be warning signs of coming financial troubles; if you can spot these issues as they’re happening, you’re more likely to deal with them before they get out of hand.
- Access to better opportunities
- Once you’ve created a strong and healthy business credit profile, several doors and opportunities will make themselves available to you. Monitoring your credit report helps you know how to identify these new opportunities.
- If your credit report looks robust, you’ll know you can start looking for new and more legitimate lenders or financiers.
Now that you’re comfortable checking your business credit, let’s explore how to build it.
The easiest way to build business credit
The best way to start building business credit with no risk is to use a service like Nav, CreditSuite, or eCredable.
These services link directly to your business bank account and automatically report all eligible transactions to credit unions.
This allows you to build credit without taking out a loan or a line of credit.
For new businesses in particular, this is invaluable. Building business credit without involving your personal credit or being asked for a personal guarantee is exceedingly difficult, so the services that help you build credit from scratch are a huge help.
We’ve put together more information about each service below. Remember to explore each option carefully before ensuring you land with the service that will benefit your business the most.
Nav provides a service that allows business owners to share their business information with Nav’s network to create a shortlist of their lending options at any given time.
With over 350,000 small businesses assisted, Nav has proven that it can help even the smallest businesses find funding.
In some ways, Nav acts as a matchmaking service. They use the data provided by your business and their network of lenders to determine the loans and lines of credit you have access to.
CreditSuite is a great option for newer businesses and business owners who want to keep their personal credit as far away from their business credit as possible.
CreditSuite has a list of over 100 “Funadability Factors” they use to determine your business’s creditworthiness. With access to these factors, business owners can use the information to start building a robust business credit profile before they apply for a loan.
Similar to Nav, CreditSuite will use your business’s information to find opportunities to take loans or lines of credit.
eCredable is another great option designed to help newer businesses build business credit. They use existing payments and costs to help build your credit score without any additional input on your part!
First, you link your business accounts to eCredable.
Next, eCredable searches your accounts for regular payments and utility bills, anything that could have a positive effect on your company’s credit report.
Finally, eCredable uses these existing payments and bills to bolster your business credit profile.
As you can see, these services are invaluable. CreditSuite and Nav are great tools to help determine how to build your business credit and loans or lines of credit you can take now to help you accomplish this.
eCredable, however, is a great tool that helps you build business credit immediately by using existing utility payments and other costs to strengthen your credit profile.
With good business credit, you don’t have to worry as much about economic downturns or macroeconomic situations outside your control. And, if you can borrow money in bad times, borrowing money in good times will be a breeze.
As the global banking situation continues looking dire and the country teeters on the edge of panic, securing a healthy business credit profile now is one of the best decisions you could make for your business that will pay off exponentially over time.
Additionally, setting your business up with a Virtual Office is a great way to get better access to loans and lines of credit.
A Virtual Office from Alliance shows banks you’re a serious business, making them more likely to approve you for better loan terms. This allows you to build business credit with fewer risks.
But how does one of Alliance’s Virtual Offices help you build business credit? Let’s find out.
How to build business credit with Alliance
Understanding how to build business credit isn’t easy.
Three credit bureaus and three separate reports, in conjunction with countless factors that go into your credit score, can make for a confusing landscape, but thankfully, several services and tools can help you make the right choices.
By using Nav, CreditSuite, or eCredable, you can start building your business credit without risking personal assets or personal credit.
Similarly, you can learn how to build business credit without taking out a line of credit or a loan.
Another way to improve your chances of getting attractive rates, low-interest rates, and all-around healthy lines of credit or loans is through the use of Alliance’s Virtual Offices.
Other virtual office providers give their clients nothing more than a PO box or another illegitimate address. These lower-quality addresses can hardly be used for LLC registration, and when lenders see these kinds of addresses, they’re immediately wary.
In addition, customers, clients, and investors look at these lower-quality addresses with the same disdain.
This is possibly because online shopping scams were the second most popular kind of fraud in 2022.
Thankfully, Alliance helps you avoid this.
Because we have a robust network of Virtual Office centers nationwide, you are guaranteed a professional and prestigious address for your business.
With a well-known address that’s surrounded by other similar businesses, you’re already years ahead of the businesses that are using nothing more than residential addresses or PO boxes.
A high-quality business address shows credit bureaus that you’re serious about your operations and gives a better first impression than other styles of virtual offices.
Through Alliance, you can use your Virtual Office address to symbolize your legitimacy. Not to mention, with the services listed above, you can use your Virtual Office payments to continue boosting your business credit profile.
With a well-known address surrounded by similar businesses, you’re already years ahead of the businesses using nothing more than residential addresses or PO boxes.
- How to Build Business Credit: Building Credit for Your Small Business
- Small Business Loan vs Line of Credit: A Guide
- Payroll Loans for Small Business: Why your Business Credit is Crucial
- Why You Need a Commercial Address to Build Business Credit
Alliance provides Virtual Office services and several other amenities to established entrepreneurs, new ventures, and everyone in between.
Whether you’re looking for a way to keep your business credit profile healthy in our new, increasingly digital environment or just hoping to learn how to build business credit for your new company, we’ve got you covered.
Don’t let bad business credit prevent you from taking out a helpful line of credit or a loan that could save your business.
With a strong business credit profile, you have access to attractive rates, fair lenders, reasonable interest payments, and more.
Contact us today to see how Alliance can help you build business credit, and be sure to check out our Virtual Office Blog for more information!