Building a good business credit score

Women are more likely than men to have to rely on personal credit to finance their businesses because *gestures broadly at the state of the world*. It leaves us with worse terms with suppliers and lenders and more risks to our personal assets.

If you run a company, you can use your business credit score to draw a short line between your personal finances and your business and protect yourself in case something goes wrong. While there’s no way to indemnify your personal credit against an unforeseen business downturn completely, you can take a few measures that will give you more control.

What is a business credit score?

A business credit score works in much the same way as your personal credit score. Lenders will look at your score to determine whether they’ll approve you for a business credit card or a loan. Suppliers may also use this score to decide whether or not to offer you trade credit. You’ll be given a number from zero to 100 based on your creditworthiness, taking into account factors like whether or not you’ve paid vendors and creditors on time, the length of your credit history, your company size, and your industry risk. The three largest credit bureaus will typically generate this number: Dun & Bradstreet, FICO® LiquidCredit® Small Business Scoring Service℠, and Experian. Equifax, one of the leading consumer credit bureaus,  also offers small business credit scores.

How do I build credit?

1. Establish your business. Get a federal employer ID number. You could also choose to incorporate or form an LLC if it’s the right time for your business. Set up a dedicated business phone line.

2. Get a business bank account and credit card and use only up to 25% of your credit line. Check Nerdwallet or Credit Karma to find good deals.

3. Make on-time payments to your vendors. (Annoyingly, not all vendors report payments to the business credit bureaus so it might be worth checking with yours when you start the relationship.) Dun & Bradstreet will also give your score a little boost if you pay early.

When you’re sending payments, opening accounts or getting loans, use only your company name and ID number; leave your SSN out of the picture as far as is possible.

Does my business credit score affect my personal credit score?

We wish it didn’t—and it shouldn’t—but sometimes it does. Your personal and business credit reports are kept on entirely different databases, but Gerri Detweiler, education director at Nav, explains to Credit Karma “There are a few business credit cards and financing options that may report to both commercial and personal credit. And there are some credit scores, such as the FICO® SBSS℠, that include data from both personal and business credit…It’s important for business owners to understand, monitor, and build both.”

Check a credit card’s reporting policy against all of its other rewards and services to determine whether it’s the right fit for your business.

Can I build good business credit with a not-so-great personal credit score?

Many lenders and business credit card issuers will look to your personal credit when deciding whether or not to accept you. But that doesn’t mean that they all do and that doesn’t mean you can’t build credit other ways.

One of the factors affecting your business credit score is how quickly you pay vendors. Try to find vendors who you know are reporting to the bureaus and are willing to give you goods or services with payment terms after you’ve received them. Then you can start to build up your credit from there.

How do I find out my business credit score?

Setting up a free Nav account will give you access to your scores from Dun & Bradstreet and Experian, plus your personal credit score from Experian. This is a soft inquiry so it won’t hurt your score to check.

Unlike your personal credit score, you aren’t entitled to a free report from each of the three main bureaus, but you can purchase them from around $50 – $100. A hard check on your business credit rating doesn’t tend to be as detrimental as the hard checks are to your personal credit.

It’s worth noting here that anyone can look up your business credit score: your suppliers, investors, or potential landlords.

A good way to increase your score is to check the reports include the right information and send back corrections to any errors that could be detracting from your score.

Keeping it in check

The relationship between personal credit and business credit can be frustrating when with some lenders it’s wholly separate and others it’s blended.

The best thing we can do is to keep an eye on both our personal and business credit scores and always check to see where lenders, credit cards, and vendors will be reporting.

Read more of expert, Gerri Detweiler‘s, advice on the subject of business credit.

The best thing we can do is to keep an eye on both our personal and business credit scores and always check to see where lenders, credit cards, and vendors will be reporting.