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How to Build Your Business Credit

March 28, 2023

When business owners build business credit, they can ready their companies for future expansions, mitigate cash flow problems, and prepare for a recession.

However, building business credit can be challenging and take time. Business owners who wonder how to earn a top-notch business score are not alone. Fortunately, there are plenty of solutions for them to build the credit score they need.

Manage the Basics

Entrepreneurs and other business owners can begin to build business credit once they have the basics handled. Therefore, building business credit requires a few essential steps:

  • Register the business with relevant local, state, and federal authorities. The owner must apply for an EIN or Employee Identification Number with the IRS. This number is required to build business credit or open a bank account.
  • Use the EIN to get a credit score from Equifax and Experian. To obtain a credit score from Dun & Bradstreet, a business owner must apply for a DUNS number, a nine-digit number unique to the business. This number is often required for many commercial lending applications, so it is worth pursuing.
  • Open a bank account with a local bank. Preferably, this bank will offer various services that a business owner can integrate into the company’s financial approach, including providing numerous accounts, commercial lending services, and more.

Take Out a Business Loan

A business loan can shore up financial operations, and business owners can boost their credit scores by paying for such a loan on time. In addition, financial institutions or other lenders will usually report positive credit history to a credit bureau. As such, repaying a business loan can allow business owners to fulfill vital business goals and build credit history.

All business owners should develop a solid working relationship with the lender and ensure they take out loans they can pay back. In addition, if there are ever financial problems in the business, a business owner should communicate these issues immediately. Doing so may prevent late fees or negative credit reports.

Open Credit Lines With Vendors

Beyond credit card history, a credit score depends on how well business owners establish relationships with vendors. As such, entrepreneurs learning to build business credit must consider other payment methods.

What does this mean? They need to build solid credit with suppliers and other merchants with whom they do business. When considering whether to do business with specific vendors, business owners should determine if the supplier offers the equivalent of a store credit card or a line of credit. They should also ensure that the supplier will report credit card purchases and payments to a credit bureau. A positive credit history leads to sharing those good results with reporting bureaus, which means an increased credit score.

However, business owners should not only buy one-off items to increase their credit score. Most business owners need plenty of supplies during normal business operations, so purchasing these everyday items can naturally build business credit. With some legwork, a business owner can accomplish two goals simultaneously by buying supplies from vendors who will report the positive payment history to credit bureaus.

Develop a Responsible Financial and Budgeting System

Responsible budgeting practices and financial systems are needed to build a positive credit history. Creating sustainable budgeting calls for a business will need to develop a few accounting mechanisms, including:

  • An active and up-to-date system of managing and tracking revenue and expenses
  • A secure method of depositing cash and checks and ensuring all credit card payments go to the correct bank account
  • Advanced financial software that tracks cash flow and provides a business with detailed breakdowns of what products or services generate the most cash
  • Depending on the type of business, an inventory tracking method to ensure a company gets needed products and on-time payments

Entrepreneurs and other business owners need to develop a system that automatically tracks what is owed and when payments must happen. On-time payments are one of the most significant factors because repeated late payments can damage a business’s credit score and waste money on unnecessary expenses and fees. In addition, if a company is late too frequently, it may lose vendor access and jeopardize its ability to provide products to customers.

Therefore, developing a financial system that can allow a business to manage bills and expenses is critical to developing a healthy credit score.

Final Thoughts

The question of how to build business credit can be answered in many ways. Chief among them: Complete the basic steps, work with suppliers to generate a positive credit history, and spend money responsibly.

Building business credit may be a matter of following a few basic steps, but accessing the necessary programs can be more complicated. At First Western Trust, we know what it takes to manage a business. We offer various commercial banking products, including commercial lending, depository services, and more.

At First Western Trust, we’re here to fulfill our customers’ business needs. Contact us today for more information on how we can help your business grow.

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