Introduction to Business Credit Cards

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How to build business credit

Applying for an EIN and paying your bills on time are the first few steps to start establishing business credit


Business credit can affect your ability to qualify for business financing and more favorable borrowing terms. Establishing a healthy business credit history isn’t as difficult as you might think, and these steps can help you get started.

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Want to make running your business easier? Establishing business credit or improving your personal credit profile is a great way to do that. Credit history and credit scores can play a big part in helping you scale your business if you want to get approved for financing.

Personal credit can only take you so far, however. At some point, you’ll need to work on building credit for your business. Establishing a healthy business credit history isn’t as difficult as you might think, and these tips can help you get started.

What is business credit?

Business credit is simply a way to measure how responsible your business is when it comes to managing its finances. This is similar to personal credit. The difference is that business credit looks only at financial activity related to running your business.

That includes factors such as:

  • Number of trade experiences (record of payment made to a partner or supplier)
  • How many lines of credit your business has
  • Balances owed on each line of credit
  • Credit utilization
  • How consistent you are in paying debts and other bills on time
  • Any public records on file, such as liens, bankruptcies or judgments

“Building good business credit is all about establishing a track record of good financial habits over time, including how much you borrow, how quickly you pay it back and how you handle other financial obligations,” said Ben Gold, CEO of Good Funding.

Why business credit matters

You can apply for a business credit card or small business loan based on your personal credit if you’re just starting out, but eventually, it’s a good idea to separate your personal credit from your business credit.

For example, buying thousands of dollars worth of inventory could raise your credit utilization ratio, bringing down your personal credit score. Since a business usually requires higher purchasing power than an individual, you may find it difficult to keep up with your business’s needs with a personal card. Plus, when it’s tax season and you have to report deductible expenses, it can be difficult to separate the personal from the business transactions if they’re all on one credit card.

Once you establish your business credit, you can apply for a business loan without any personal liability. The business becomes responsible for paying back the loan. Business credit is also important because it can affect your ability to qualify for business financing and the terms you’ll receive.

“Business credit is a way for a supplier, lender, investor, etc., to evaluate your risk of paying back any capital lent or credit given,” said Brian Cairns, CEO of business consulting firm ProStrategix Consulting.

Poor business credit or no business credit history at all could stand in the way of opening vendor trade lines or getting approved for business loans or lines of credit. If you are approved, a lower business credit score could translate to higher interest rates and increased borrowing costs.

Your business credit score 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, any business credit cards you hold and any loans you take out.

How long does it take to build business credit?

When it comes to building business credit, slow and steady wins the race. On average, it takes about three years or more to build business credit, says Nat Wasserstein, the managing director of Lindenwood Associates.

“Usually, credit applications say they want you in existence for at least three years,” Wasserstein said.

In some cases, creditors may require just one year, he said, 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.”

8 steps to build business credit

1. Apply for a federal tax ID

The credit bureaus use your Employer Identification Number to track your business. You can apply online at the IRS’ website.

2. Open a business bank account

One of the most basic ways to start establishing business credit is to open a bank account in the name of your business and use that account for all of your business deposits and withdrawals. Don’t forget to bring your EIN when you open the account.

Be sure to handle this account carefully to avoid bounced checks and overdrafts. It will be easier to keep your books and do your taxes if you keep good records. Additionally, you should maintain an adequate balance to avoid overdrafts or bounce checks. It’ll show creditors you are responsible with your finances.

3. Form a business entity

Setting up a limited liability company or other business entity, such as an S corporation, can also make it easier to establish your business finances as separate from your personal finances.

It’s important to get advice from an accountant and an attorney on the right business entity for you. The decision you make can have tax implications — and making the wrong choice can cost you a good amount of money.

4. Apply for a business credit card

Using a business credit card for all your business charges will help you establish business credit. You should ideally pay your balance in full every month, but if you can’t do that, make sure you’re not maxing the card out. High credit utilization can lower your business’s credit score.

If you have a low credit limit and need to put charges such as airfare and hotel stays for business trips on the card regularly, consider applying for a second card so you don’t have to max out either of them.

Also, take time to research business card options before deciding on which one to apply for.

A business credit card, for example, can offer flexibility in carrying a balance, but that usually means paying interest. A business charge card could offer rewards and interest-free borrowing, but it also carries the obligation to pay in full each month.

Here are a few recommendations if you’re looking for business credit cards to build credit:

  • Capital One® Spark® Classic for Business*: 1 percent cash back on every purchase, with no annual fee. This card is geared toward cardholders with a personal credit score of fair credit and looking to build or rebuild their credit.
  • American Express Blue Business Cash™ Card: 2 percent cash back (on up to $50,000 in purchases per calendar year), 1 percent cash back on all purchases after that and no annual fee. With its simple rewards structure and $50,000 annual spending cap, this card is great for businesses with relatively few expenses.
  • Ink Business Unlimited® Credit Card: 1.5 percent cash back on every purchase and no annual fee. Best suited for good-to-excellent credit, the Ink Business Unlimited’s high rewards potential and participation in the Ultimate Rewards program makes it an attractive and versatile card.

Keep in mind that credit card companies typically check your personal credit history and financials when you apply for a business credit card. The better your personal credit, the better your odds of being approved and getting a favorable interest rate.

5. Establish trade credit

Opening vendor trade lines can help with creating credit history if your suppliers are willing to offer financing terms. And it may be more accessible for some business owners than a credit card.

“The great news is many of these vendors don’t check personal credit, which means they may be available to business owners with less than perfect personal credit,” said Gerri Detweiler, the former education director at Nav, in a previous interview.

If you regularly do business with a big box office supply store or hardware store, ask if it offers a line of credit or a store credit card. Use it for your purchases at that store and pay the bill on time.

6. Make sure the major credit bureaus are tracking you

The three major credit bureaus tracking your business credit score are Dun & Bradstreet, Experian and Equifax. It may take some time for them to begin tracking you, but you can always visit their websites to see if you are being tracked and view your business credit report.

The most widely used score, a Paydex score, is issued by D&B and ranges from 1 to 100. To get tracked, you must apply for a DUNS number, which banks and creditors will use to check your company’s creditworthiness for deciding to extend you credit.

An 80 or above is considered good credit ­— roughly the equivalent of a 750 personal FICO score, says Ryan Boatsman, partner and COO at DeLap.

The two other credit bureaus don’t require you to register for a special identification number.

7. Stay current on all of your bills

Because payment history is a factor in your business credit score, much like your personal credit score, you should pay your bills or lines of credit as soon as possible. If you pay in full before the due date, your score will positively reflect it. If you typically pay after the due date, such as 30 days or later, then your score will be affected negatively.

Many established vendors report to D&B and other credit bureaus, according to Wasserstein. It’s how the credit bureaus keep track of your payment history.

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 delinquencies in the next few years while you’re building up your business score.

8. Check your credit reports regularly

Your business credit report can also experience fraudulent activity, so you should be diligent in monitoring and maintaining the accuracy of your business credit profile.

Mistakes happen on business credit profiles as well as on personal profiles, and a few erroneous reports can drop your business credit score dramatically, Boatsman said. He advises checking your business profile annually and at least 60 days before you apply for new credit to ensure you have time to correct any mistakes or inaccuracies you find.

If you find inaccurate information on your business credit report, you can submit a dispute through the respective credit bureau’s website.

When to apply for a business credit card

After repeated, good financial behavior, 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 with which to evaluate you.

You can also check your business credit report to make sure your credit is in a good place before applying for new lines of credit. Sometimes it can take a while for creditors to report to credit bureaus. Credit card issuers will probably check your personal credit, too, so make sure that’s where you’d like it to be as well before you apply.

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 low 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 on time each month, you’ll build a stronger and stronger credit profile. Just be sure not to use all of your available credit to keep your credit utilization low.

Bottom line

Building business credit is more of a marathon than a sprint. Start early if you think you will need to apply for substantial credit or a business loan. In the meantime, while you’re improving your business credit score, make sure to take good care of your personal credit.

In the early days of your business, you likely have to personally guarantee your business using your personal credit score. In that case, it’s better for your business the higher your personal credit score is.

Once you have a high business score, you’ll have access to better interest rates and borrowing terms. That can lower the overall cost of running your business and help you to achieve bigger profits.

*All information about Capital One Spark Classic for Business has been collected independently by and has not been reviewed by the issuer.

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The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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