Many people dream of starting their own business one day, but not everyone can fund their business ventures with their own savings. Most entrepreneurs will probably want to apply for business credit at some point.
For those interested in building business credit, our article breaks down the difference between business credit and personal credit, what business tradelines are, and how to build business credit.
Building business credit is similar to building personal credit, but it’s actually a completely separate system. Just as individuals have personal credit scores that are meant to represent their creditworthiness, businesses have business credit scores to represent the company’s creditworthiness.
Good business credit shows that your business has been reliable in paying creditors, which indicates that it is a good candidate to loan money to or do business with.
Establishing business credit is essential if you ever want to be able to make purchases from vendors on credit or open a business line of credit to help support your company. Virtually all businesses will likely want to have the option of using credit at some point.
Business credit scores are determined by the major business credit bureaus: Dun & Bradstreet, Equifax, and Experian. Each bureau has a different way of collecting information and determining your business credit score. FICO also offers a credit scoring service for small businesses.
Business credit reports aren’t free, so if you want a business credit check, you will have to pay a bureau to provide a business credit report.
To build up a Paydex credit score, a business needs to obtain a DUNS number from Dun & Bradstreet and establish a payment record with at least four vendors, according to NerdWallet. Since the Paydex score is solely based on how quickly businesses pay their debts, you’ll want to pay your suppliers ahead of schedule to build your Paydex business credit score.
In establishing business credit, as with personal credit, the most important factor is maintaining a good credit history. However, business credit reports can often take into account additional information, such as legal filings, public records, and the age and size of your company.
Things that can hurt your business credit score include:
Just like personal credit reports, business credit reports can and often do contain errors. it is important to regularly check your business credit report for errors that could be damaging your score.
Business tradelines are all of the credit accounts belonging to your business. Examples of business credit tradelines include business lines of credit, business loans, business credit cards, and credit accounts with individual suppliers.
Those hoping to get business credit to start or expand their own businesses may seek out business tradelines for sale to help them build their business credit rating. However, similar to buying primary tradelines, trying to buy tradelines for business credit might not be a good idea for several reasons.
Firstly, business tradelines don’t always report to the credit bureaus. Many business tradelines are not necessarily loans or credit cards but accounts with individual vendors that allow you a certain period of time to pay your bills. Not all vendors report payment activity, so many times businesses are required to pay Dun & Bradstreet a monthly fee to verify their credit history.
In addition, getting business credit usually depends more on having strong personal credit and a healthy business revenue than having a certain number of business tradelines on file.
While Tradeline Supply Company, LLC does not assist with tradelines for business credit or business funding, we can share some general information on the subject.
Generally, one of the most important factors in getting business credit is to be a personal guarantor, especially for a newer business that does not have much credit history. As a personal guarantor, it is essential to have excellent personal credit.
Even if you are not a personal guarantor, often lenders will still check your personal credit when you are applying for business funding. So while business credit may be the long-term goal, the way to achieve this goal is first to build and maintain your own outstanding credit report.
Therefore, one of the best steps you can take toward establishing business credit is building up your own credit history so you can serve as a personal guarantor for your business.
In this article, we’ve talked about using personal credit to obtain business credit. But does it work the other way around? I.e. if you have a business credit card, can that tradeline potentially affect your personal credit score? Below, watch the Credit Countdown video where credit expert John Ulzheimer answers this question.