Building business credit has paid off for Coleman’s A/C Heating & Appliance Repair.

“(Our) credit scores allowed us to secure a loan, which we used to expand our operations and add a company vehicle,” says April Coleman, vice president of the Jackson, MS-based business, which specializes in the repair, maintenance, and installation of air conditioning, heating systems, and household appliances.

How did they do it? 

“To improve our business credit scores, we first signed up for a credit monitoring app to track all our business credit scores,” says Coleman. “Then, we opened trade accounts and consistently paid them on time over an extended period. Finally, we applied for a business credit account to build a more positive credit history.”

Here’s how your business can work on your company’s credit.  

How to Start Building Business Credit

A business credit score is similar to a personal credit score in that it serves as a key indicator of a business’s creditworthiness, and likelihood of a borrower to repay debt. 

A good business credit rating can help your business secure better payment terms with suppliers (such as net-30 vendor accounts), get small business loans and other financing options with lower interest rates or more favorable terms, secure lower premiums on business insurance, and even land key partnerships. 

For many small business owners, raising your credit scores can feel like just another thing on a long to-do list. We’ll make it as simple as possible by helping you understand key factors that affect creditworthiness, and then follow it up with a list of tips to raise your business credit profiles simultaneously.

First, let’s quickly review how business credit works. 

The three major business credit bureaus are Experian^TM, Equifax®, and Dun & Bradstreet®. Each bureau compiles and sells business credit reports. 

They also create and sell their own business credit scores. FICO® also creates a business credit score called the FICO SBSS score based on data from different credit bureaus. 

Business credit reports contain information about the business itself (name, locations, numbers of employees, industry codes and more.) But the heart of any business credit report is payment history. 

Tradelines, including business credit cards and business charge cards that report to business credit bureaus can be an excellent way to build business credit when paid on time. 

Small business loans, lines of credit, equipment financing, and other types of business financing can also help build credit, as long as the lender reports and the business maintains an on time payment history. Understand that some lenders report to the Small Business Financial Exchange, which then makes that information available to the major credit bureaus. 

How to Improve Your Business Credit Score

Now that we’ve touched on the basics, here are several steps you can take to help build your business credit over time. 

Tip 1: Establish a Solid Reputation

Credit scores are created to help lenders and other businesses manage risk. They less risky your business, the better your chance of success. 

Before you start improving your business credit scores, check that your business is set up the right way. 

Rosie Fierro, founder of Roupa Fashions, a boutique dedicated to curating an exclusive collection of designs and styles for women from around the world, learned how important these foundational steps are to establishing a good business reputation. 

“Starting out I cut corners for expenses,” she says. “I didn’t want to spend on things I viewed as small. That when I got around successful business owners, I realized it’s important. Like having a business email.” 

Here are a few steps you can take to help “legitimize” your business. 

Make sure that your business is registered with your state and that you have an Employer Identification number (EIN). Although a business credit score isn’t as directly tied to an EIN the way a personal credit score is tied to a Social Security Number (SSN), you will be asked for an EIN when you apply for credit.

While it’s best to operate with a formal legal business structure, you can build business credit as a sole proprietorship. If you do, file a fictitious business name (DBA) with your state. 

And regardless of your business structure, get any necessary business licenses. 

Tip 2: Check Your Business Credit 

Peeling back the curtain is a crucial first step. If you’ve been doing business, you may already have business credit reports and/or scores; you need to find out what it says. 

You can pay to obtain your business credit score from the business credit bureaus, but unlike consumer credit scores, they are not required to offer free business credit reports or scores. 

Nav helps you check, manage and monitor your business credit for free. Nav Prime lets you dive deeper with detailed credit reports and business credit scores from Experian™ and Equifax®.* 

Tip 3: Make Sure Your Business Has Accounts That Report

One of the reasons businesses have low credit scores is they don’t have enough accounts reporting to business credit bureaus. 

Past payment history is used to predict future behavior. To build a good business credit score, you need credit accounts with a positive payment history on your credit reports.

The more positive payment experiences you have on file, the better.

A popular way to start is with trade references from vendors. Vendors can include suppliers, wholesalers, and other companies that offer payment terms. If your suppliers don’t report, you may need to actively find ones that do.

Read: Net-30 Accounts That Help Build Business Credit

Tip 3: Get a Business Credit Card

A business credit card or business charge card that reports to business credit bureaus can be a great way to build business credit, as well as an effective way to separate personal and business expenses. 

Most business credit card issuers report to major commercial credit bureaus, making them one of the easiest ways to start building credit. Here’s a list of business credit cards and charge cards that help build business credit. 

Tip 4: Pay On Time (or Early)

Payment history is the cornerstone of your business credit score. It’s so important that it makes up at least half of your overall score—or more, depending on the credit score used. 

• Business credit bureaus often measure payment history using “Days Beyond Terms” (DBT). Here’s how it works:
• If you have “net-30” terms with a vendor and pay on day 32, your report will list 2 DBT
• Even paying just a few days late can affect  your scores

Payment history may be compared to other businesses in your industry or your geographic area. 

On the flip side, paying early can boost your score, especially for the D&B PAYDEX® score. With that score, paying on time can help your business earn a good credit score, but paying early could help it earn an even higher score..

Life gets busy when you’re running a business. To avoid late payments: 

• Set up due date reminders on your phone or calendar
• Use alerts from your accounting software or bank
• Set up auto-payments for regular bills when possible

Tip 5: Keep Credit Utilization In Check

Credit utilization is the balance that appears on your credit report compared to your total available credit. It’s usually expressed as a percentage. Here’s how it works:

• If you have a $10,000 credit limit and a $3,000 balance, your credit utilization is 30%.
• This can apply to individual credit cards/revolving credit (like lines of credit) as well as all of them added together.

Why it matters:

• With some credit scoring models, it can be a factor in calculating your business credit score.
• Lower utilization generally means a higher credit score.
• It gives lenders an idea of how much of your available credit you’re using.

For example:

• Business A has a $5,000 limit and a $4,000 balance (80% utilization).
• Business B has a $5,000 limit and a $1,000 balance (20% utilization).
• Business B may appear to be a lower credit risk, all else being equal.

Experts often recommend keeping your utilization below 30%. It’s not a hard and fast rule, but it’s a good benchmark to keep in mind. 

Here are a couple of ways to lower your credit utilization:

1. Decrease your balance:

• Pay down your balance or pay more quickly if you pay in full.
• Use a balance transfer to move debt to a different card to spread out debt.

2. Increase your available credit:

• Ask your current credit card provider for a limit increase.
• Open new credit accounts or tradelines.

If your credit scores have improved since you first got your card, you may qualify for a higher limit. Don’t be afraid to ask – it could boost your credit score.

Your credit utilization can change month to month as your balances and credit limits change. Keeping an eye on it can help you maintain a healthy business credit score.

Tip 6: Don’t Borrow More Than You Can Afford

Though business is inherently risky, especially when you’re first starting out,  the main way to avoid seriously negative credit is by borrowing cautiously.  

Debt you can’t repay can lead to bad credit in the form of liens, bankruptcies, and judgments. Once this information is in your credit files, it can be difficult to remove.

With business credit, there’s no law that imposes a time limit for reporting negative information like there is with personal credit. Credit bureaus can report delinquencies and other negative information as long as they choose. (Here’s how long most bureaus report negative information.)

You can dispute information you believe is inaccurate, and the bureau may stop reporting it if it cannot be verified. (There is no federal law that specifically requires that in the case of business credit, however.) 

Tip 7: Check UCC Filings

A UCC filing is also called a UCC lien. It’s a financing statement filed by lenders with your state and is used to protect the lender’s interests. UCC filings can affect your business credit or the ability to get a small business loan, so make sure you check them.

How it works:

• When you take out a secured loan, the lender may file a UCC lien.
• It can cover specific assets (like equipment or vehicles) or all your business assets (blanket lien).
• Generally a UCC filing lasts for five years unless the lender refiles.

Why it matters:

• UCC filings often appear on business credit reports.
• Too many unsatisfied liens can make your business look risky to potential lenders.
• Outdated liens can harm your credit even if the debt has been paid.

What you can do:

1. Check your business credit reports regularly for UCC filings

2. Make sure paid-off loans have their liens removed

3. If you find an error, dispute it with the credit bureau and/or your secretary of state (Here’s how to dispute UCC filings.)

Reviewing UCC filings helps you maintain an accurate credit profile. This can lead to better loan terms and more financial opportunities for your business.

Bonus: Boost Your Personal Credit Score

When you’re first starting out in your small business, it’s likely that you’ll have to  sing personal guarantees when applying for funding and credit. 

Some lenders require a personal credit check, and good personal credit can help your business qualify for certain types of business financing, including SBA loans and business credit cards. 

So similar to business credit, check, monitor and work on your personal credit: 

• Check your credit score regularly
• Pay debts like credit cards, a mortgage, auto loan, and student loans on time
• Dispute mistakes
• Apply for loans or new credit cards strategically to avoid unnecessary inquiries
• Keep your credit utilization ratio at least below 30% – lower may be better

How Nav Can Help You Improve Your Business Credit History

Nav’s financial health platform is built for small business owners to track and improve business credit and cash flow health.

With Nav Prime™, the paid offering, you’ll get business credit scores* and Detailed Credit Reports from two leading business credit reporting agencies: Equifax® and Experian™, along with business credit scores Equifax® Business Delinquency Score® and  Experian™ Intelliscore PlusSM V2. 

Personal credit also matters to many business lenders, and with Nav Prime you’ll get personal credit scores and detailed reports from Experian™ and TransUnion®. Scores provided are the TransUnion® VantageScore® 3.0, and Experian™ VantageScore® 3.0. 

Reports and scores are updated monthly when you log in. Understand what information companies are reporting about your business, and view both business and personal credit in one dashboard.  

In the Credit Health hub, see aggregate trends in your credit, key factors having the most impact on your scores, and keep track of new progress you’ve made. 

You’ll also see details on public records, including UCC filings, that can directly and indirectly impact financing or other opportunities. 

Nav Prime offers a tradeline submitted monthly to the major business credit bureaus to help you build and maintain a strong business credit history. 

*Nav provides access to Experian™ Intelliscore PlusSM V2, Equifax® Business Delinquency Score®, TransUnion®VantageScore® 3.0, and Experian™ VantageScore® 3.0. VantageScore is a registered trademark of VantageScore, LLC.