Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Find a Job
  • Home
  • Business Management & Operations
  • Strategy, Entrepreneurship, & Innovation

Building Business Credit - Explained

What is the Best Manner of Building Credit?

Written by Jason Gordon

Updated at April 14th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

Why Establish Business Credit?Form a Business EntityObtain a State and Federal EINEstablish a Business Bank AccountStart a Business Credit FileObtain a Line of Credit or Business Credit CardMake Timely Payments

What is Business Credit? 

Business credit is the ability of a business to borrow money. It can be in the form of a credit card or line of credit. 

Why Establish Business Credit?

Early in the life of a business, founders generally have to guarantee any loans or lines of credit for a business. Having business credit will allow the business to secure funding without resorting to the credit history of the owners.

What is a Credit Profile or Credit Rating or Credit Score? 

Businesses and individuals can build a credit profile with a credit reporting agency. 

Several credit rating agencies provide business services: Dunn & Bradstreet (for business entities) Experian, Equifax and TransUnion (for individuals).

The credit profile rating (Credit Score) represents a risk factor for loaning money to the business or individual. A high credit score means that the individual is dependable and it is a lower likelihood that they will fail to repay in borrowed funds. A low credit score signals the opposite. 

Back to: Entrepreneurship

Things to do to build business credit.

Form a Business Entity

To obtain a credit profile, a business must have a separate identity from the owners of the business. See our lecture series on choosing and forming a business entity.

Obtain a State and Federal EIN

Obtaining an EIN will provide a record of income and tax payments. See our lecture on obtaining an EIN.

Establish a Business Bank Account

Opening a bank account will provide a record for payment transactions. See our lecture on obtaining a bank account.

Obtain a Line of Credit or Business Credit Card

Obtaining lines of credit or business credit cards demonstrates responsibility. It provides proof of use of funds and payment of debts. Be careful not to open credit accounts too rapidly. This can actually hurt a credit score. Start by developing two or three credit sources. Use these sources regularly and make prompt payment on any debt. Note: The most advantageous type of loan is an unsecured loan. This type of loan may be difficult to obtain early in the life of a business.

Make Timely Payments

Like a personal credit history, businesses must make timely payments on all obligations. Failure to make payments or late payments are recorded and can harm a business's credit rating.

build business credit credit score credit rating credit profile build credit

Was this article helpful?

Yes
No

Related Articles

  • Acceptance Testing - Explained
  • Disintermediation (Strategy) - Explained
  • Organic Growth - Explained
  • Vertical and Horizontal Integration Strategies - Explained



©2011-2023. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand