Experts say it can take three years or more to build business credit, but some creditors may only require one year. If you’re trying to establish credit for a new business, these steps can help you get started.
Nat Wasserstein, principal of Hudson Premier Payments, a payments processor, in Nyack, N.Y., estimates that it takes three years or more to build business credit.
“Usually, credit applications say they want you in existence for at least three years,” says Wasserstein.
In some cases, creditors may require just one year, he says, but that isn’t the norm.
“They want to see you’ve been around,” says Wasserstein. “Once you have that, they want to see that there isn’t anything outstanding. There are no judgments. They need to have enough time to determine whether they want to extend credit to that company.”
How to get started in building business credit
Your business credit profile is based on your track record of handling your business finances, such as your business checking account, any credit accounts you open with merchants such as office supply stores or hardware stores and any business credit cards you open – as well as any loans you take out.
- The first step is to formalize your business. Every business owner should have a business checking account, with the name and federal tax ID of the business, that is separate from their personal one. This helps to establish the business as an entity separate from you.
- Handle your checking account with care. Make sure you maintain an adequate balance so you don’t have overdrafts or bounce checks. It’ll show creditors you are responsible with your finances.
- Stay current on all of your bills. Many established vendors report to Dun & Bradstreet and other credit bureaus, Wasserstein notes. It’s even possible that a vendor like your phone company will report your payment patterns to credit bureaus, so stay current, he advises. Put reminders in your calendar to pay your bills, so you don’t have any blips on the radar screen in the next few years.
- Six months to a year into your efforts,try applying for a store credit card at an office supply retailer or hardware store if you make purchases there frequently. That can be a good way to start building your business credit.
When to apply for a business credit card
Over the coming months, as you pay them on time, you’ll improve your chances of applying successfully for a business credit card. A good point to try doing this is at the one-year mark. At that point, credit issuers will have a decent amount of activity on which to evaluate you.
If you’ve fallen behind and paid some of your bills late – a common occurrence in new businesses with unsteady cash flow – wait until you have 12 months of a perfect or near-perfect track record to apply.
Even if you can only get a credit card with a small credit limit, such as $1,000, at first, be patient. Rome wasn’t built in a day, and neither is business credit.
As you pay this bill time each month, you’ll build a stronger and stronger credit profile. Just be sure not to use all of your available credit. That will lead to high credit utilization, which will hurt your business credit.
Monitor your business credit score
Check your business credit score periodically. Sometimes it can take a while for creditors to report to credit bureaus, and if you aren’t getting tracked, you’ll want to take the right steps to make sure you are.
Stay strong and be committed to your goal. Building business credit takes patience, but it’s very possible to achieve the track record you need to get that loan.