How to Establish a Good Business Credit Score

Businessman in credit score concept

Securing capital to start a company, or grow a budding business, can be one of the biggest challenges for entrepreneurs, particularly if your personal credit is less than stellar. Unfortunately, traditional banks and credit unions have tough credit requirements for small business owners, and poor credit scores can make it difficult for entrepreneurs to qualify.

Of course, there are non-bank lenders out there that offer alternative loan options, but these bad-credit business loans often come at the cost of high interest and unfavorable terms. If you want to obtain the best financing deals for your small business, your best bet is to take the time to build your credit history and improve your score.

4 Steps to Establish & Improve Your Business Credit Score

Step 1: Separate Your Finances

First and foremost, you need to separate your business and personal finances. Keeping the two separate means you won’t have to put your personal credit on the line every time you apply for a business loan.

Set up separate checking and credit card accounts, and consult with a tax advisor about whether you should incorporate your business. Even if you opt for a sole proprietorship, you’ll still want to obtain an employer identification number (EIN), secure a proper business license, and register with your state and local agencies.

Step 2: Establish a Business Credit History

In order to establish your business credit history, you’ll need to set up accounts that report your payment history to the commercial credit agencies – Dun & Bradstreet, Experian and Equifax. A good place to start is with a business credit card.

By establishing a designated line of credit for your business spending, it also makes it easier to track expenses, manage employee purchases, and earn rewards on your business purchases. Chase and American Express both offer small business credit cards with great benefits and rewards that include no annual fees, cask back bonuses and airline miles.

Step 3: Stay on Top of Your Payments

Paying your bills on time is the single most important thing you can do to improve your business credit score. That’s because payment history is the most heavily weighed factor in most commercial credit scoring models.

In fact, if you want to earn the highest score from Dun & Bradstreet, you actually have to consistently pay your bills early every month. That means, instead of waiting the full 30 days, you should schedule your payments a week or two ahead of time, whenever possible.

Step 4: Check Your Scores Often

Contrary to common belief, you can’t hurt your personal or your business credit score by checking it yourself. So make a point to know your scores and monitor them regularly. In addition to providing you with an overview of where you stand in terms of credit, monitoring your business credit scores can alert you to any discrepancies. Unfortunately, as many as 25% of business credit reports contain missing information or errors.

It’s also important to understand some key differences between personal and business credit scores. For one, personal credit scores range from 300 to 850, while business credit scores range from 0 to 100. There also aren’t as many free options for business credit score monitoring as there are for consumer credit scores. However, a free Nav account will provide you with summaries and high-level information.

More Financing Options for Boston’s Startups & Entrepreneurs

Even with good credit, financing a business can be a challenge. If you’re looking for alternatives to traditional bank loans, there are several funding options available to small businesses in the Boston area, including grants and awards. To learn more, check out our Guide to Funding & Financing Options for Boston’s Small Businesses.

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