How Does Business Credit Work? A Guide to Business Credit

Business Management

Jacques Famy Jr
Review By Todd Millman

Business credit, also known as trade credit, is defined as any loan or line of credit to a company for a business purpose whereby those funds are used for a business purpose to conduct its operations. It's important to establish business credit as it is a very important component to the operations of a business throughout its life cycle, whether a new business or well-established business; business credit is an essential tool that must be established and nurtured. 

In this simple guide to business credit, let’s learn how a business credit score is calculated, how to establish business credit and build business credit file, why it is important, and how to maintain and protect your business credit. By building business credit and maintaining good business credit, you will be able to access business financing more easily products like long term and short term business loans, business lines of credit, business credit cards, and equipment financing.

How Does Business Credit Work and How Is It Calculated?

Lenders use a business’s financial history to create a “business credit score.” The better the score, the more likely the company will be granted a loan or credit. Economic history is pulled from several sources, such as: 

  • Public Records
  • Business entity accounts
  • Data furnishers like DataMerch and Paynet
  • UCC filings
  • Background checks
  • Small Business Financial Exchange and other merchant behavior sources

The Three Largest Business Credit Report Sources

Dun & Bradstreet/PayDex Business Credit Score: This score is generated by Dun and Bradstreet, and it analyzes business’ payment performance from any creditor that reports to D&B and gives a numeric score from 1 to 100, 100 being the best performance.

dnb info scaled 1

Image source: Dun & Bradstreet

Experian Business Credit Score: Intelliscore Plus derives its score using a wide range of trade, collection, public record, and firmographic (business demographics) data, which includes extensive information about small and medium-sized businesses.

intelliscore plus sample

Source: Equifax

Equifax Small Business Credit Score: It doesn’t have a fancy branded name for its business score model but uses firmographic data, public records, trade payment history, and small business information. It does not have a specific score but provides the necessary information to lenders to develop and establish business credit by developing their own risk score models and or scores.

equifax small business

Source: Equifax

How to Build Business Credit and your Business Credit Report: 6 Steps to Establishing Business Credit fast

  1. Register your legal business name (business entity)-Form your legal business name as an Limited Liability Company (LLC) or Corporation and file with the Domestic State that you are choosing to base your business in. Many business owners make the mistake of not properly registering your business entity and open up your business as a sole proprietor, which is NOT a good idea if you’re building business credit reports for your business. Whether you file as a corporation or Limited Liability Company it won't matter to your business credit profile.
  2. Obtain a Federal Employer Identification Number (FEIN) or (EIN) (aka TAX ID)-An FEIN number is a Federal Employer Identification Number when starting a business to file taxes and payroll for employees. A Federal Employer Identification Number (EIN) is NOT your Social Security Number. The following is a link to establish a EIN number This allows a lender to search business records for credit histories.
  3. Open a business bank account-A Business checking account in the legal business name will allow you to separate business and personal as well as provide you the necessary documentation for a future business credit application. Business financing products will only look at business bank statements and not personal when making a credit decision on business loans and/or business lines of credit.
  4. Open a business credit card-A business credit card is a great way to start and establish business credit and access capital. When choosing to open a business bank account also ask for a business credit card at the same time (always check credit terms). If your bank does not offer a small business credit card there are many online credit card comparison companies like and or perhaps a popular credit card company like Capital One. Compare interest rates and business credit card terms for the best deal. Careful of your credit utilization (access) of your credit cards and over extend yourself.
  5. Establish business credit history with vendors and/or suppliers– As soon as possible, ask your vendors for credit terms net 30 days or more credit lines for billing if they report to business credit reporting agencies. Even a business phone line is a form of credit. This will help in building business credit in the early stages of your company.
  6. Register your business with internet directories-Business lenders now search the internet mining for information about the business such as social media, Google listing, business directories, and business review companies like Yelp, Trip advisor. Manta, etc. There are companies like that can assist you in listing your business in multiple registries. Also don't forget to establish a business phone number. A business phone line will help you build legitimacy.

How to Maintain Excellent Business Credit

  1. Pay your bills on time all the time- This is the most obvious and most important advice when it comes to maintaining excellent business credit, but it never hurts to state the obvious. Being able to show a recent track record of being able to pay business bills on a consistent basis is a must. If you have no established recent credit, then your business credit profile will be viewed as higher risk. No credit is bad credit.
  2. Monitor your personal credit reports and business credit reports-If you are diligent about monitoring both personal and business credit reports and files; you can catch errors and/or fraudulent activity more readily. Also, you can make sure that you have enough trade lines reporting to help you have current pay histories and maintain and grow your credit rating. Experian and Dun & Bradstreet provide services that help you monitor business credit file that you can sign up for a nominal fee. Make sure you make it a priority to monitor your credit scores and business credit report as a safety net.
  3. Separate business and personal-Never mix your personal expenses with business expenses. Business debts should be just that business expenses. Using your business bank account as a personal piggy bank can be a fatal mistake and lead to tax problems or, in some cases, financial ruin. This is not to be confused with the fact that there may be times when business owners will need to lend to the business capital during cash flow crunches, but the business should never lend to the owner. Personal credit history and credit scores will also be a tool creditors will use when evaluating business for a small business loan or line of credit and may impact interest rates and credit terms.
  4. File and pay taxes on time-It is the responsibility of the owner to pay the business’ taxes on time. Pay and file your State and Federal tax forms on time without delay. Failing to do so may count against you when applying for business financing and create a snowball effect of future credit issues.
  5. Continue to open business credit lines with vendors and suppliers-Build business credit. When it comes to business credit lines with vendors and/or suppliers, there is no such thing as too many. These are bills that are usually paid net 30 to net 60 and show the ability of the business to manage expenses.
  6. Do not overextend business with short-term business loans and other debt -With the massive growth of short-term business loans and business funding opinions for small businesses in the last ten years, there has been an increase in abuse. Watch your business credit utilization.

Short-term business loans are a great new product providing access to business owners in the past were not accessible to them, but be careful, if you put too much debt onto the business with payments that are not affordable, it can put the business in serious credit difficulty. As a rule of thumb, business loan payments should not exceed more than 10 to 15% of your monthly gross sales deposits of the business. This is a general rule and not always applicable depending on the profit margins of the business, use of funds, and/or the potential return on the investment of obtaining the short-term loan. Calculate your profit/loss and balance sheet when making these decisions.

Common Questions About Business Credit

What is a Business Credit Score?

Unlike personal credit, which has three clear credit bureaus, Equifax, Experian, and Trans Union, which produces a known and established FICO score, Business Credit is not as clearly defined as a specific score like personal credit. Business Credit is derived by using an overall evaluation of many different sources. Many business lenders create their own “business score” based on Public Records County and State Search (Liens, Judgements, Bankruptcies), Data Furnishers (DataMerch, Paynet), UCC Filings (Financial notices placed on a business when receiving financing on business), Internet mining/searches for information about the businesses activities, Owner and Business Background checks, and Small Business Financial Exchange and other bad merchant behavior sources.

What are Good Business Credit Scores?

There is no actual business credit score that is universally accepted like personal credit FICO scores are. Business lenders build their own credit scores using a variety of sources. Maintaining good pay histories with business suppliers and/or vendors, establishing business credit cards, and always paying business debt on time is the best way to keep proper business credit.

How Do I Build Up My Business Credit Without Using My Personal Credit? How can I build my business credit fast?

Contact your suppliers and vendors and if you don’t already have net 30, net 60 payment arrangements ask for them. Also, ask if they report to business credit sources like Dun & Bradstreet, Experian Business Credit, or Equifax Business Credit.

Do I need to contact Dun Bradstreet to establish a Duns number?

It is a good idea to contact Dun Bradstreet to establish a Dun's identification number when you establish your business name as a Limited Liability Company or Corporation. Getting a number is first step to build your business credit with Dun Bradstreet.

Does Personal Credit Affect Business Credit? Is business credit based on personal credit?

Your personal credit will impact your business credit far more than your business credit will ever impact any personal financing you’re trying to acquire. A lot of business loan products look at the business owner’s personal credit to determine credit worthiness because the lender is trying to establish the credit behavior of the owner. A business owner’s personal credit will impact business financing offers. Personal credit cards, personal auto financing, and mortgages sometimes will request income verifications that may include business financial statements such as business bank statements and business tax returns, so keep that in mind.

Does personal credit scores matter when getting a business loan?

Your individual credit profile does matter. Make sure you monitor your credit file, credit report, credit score and contact every credit bureau that offers monitoring of credit reports.

The Bottom Line When it Comes to Business Credit

Establishing business credit will help you secure better terms with your vendors and suppliers to secure better terms when the time comes when you need business financing for working capital, equipment, expansion, or other business opportunities.

An excellent business credit rating will help you save money, keep the cash flow of the business healthy, or help obtain assets to help the company grow. Having bad business credit will limit your ability to obtain business financing in the future. did a study called the Small Business American Dream Gap Report found that small business owners who understand their business credit rating were 41% more likely to get approved for a loan and yet 82% of business owners did not know how to interpret there business credit rating.

Business credit is a lot like health care; no one is more responsible for your personal health and well-being as an adult than you. As a business owner, it’s essential to manage and monitor all financial aspects of the business, so you get great business health outcomes. A great business credit rating will help you create a business that is at the top of its potential and keep it in the best financial health possible for whatever needs come down the road.

nav gap report


Additional Resources about Business Credit

U.S. Small Business Administration (SBA) “How to Establish Business Credit for the First Time”

Nav “How to Establish Business Credit, Get Business Credit & Build Business Credit”

Experian “How to establish business credit” - How to build credit for your business

Credit Karma “How to build business credit”

Jacques Famy Jr
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Jacques Famy Jr

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