Building Business Credit: A Practical Guide

Business credit is the reputation your company has with lenders, separate from your own. Built well, it lowers the cost of every loan you take, raises the amounts you qualify for, and eventually lets the business borrow without leaning on your personal score. Built badly, or not at all, it keeps you paying startup rates years after you have stopped being a startup. This guide explains how it works and gives you a plan you can run in a year.

Your personal score is tied to your social security number and follows you everywhere. Business credit is tied to the company's tax ID and its legal name. In the first year or two, nearly every lender decides on your personal score because the business has no file yet. Over time the balance shifts: a strong business file lets lenders price the company on its own record, and it stops every business loan from showing up on your personal report. For most owners, the personal score never stops mattering entirely, but it stops being the whole story.

Commercial credit bureaus collect payment data from suppliers, lenders and card issuers that report to them, then score the company on payment history, credit utilization, age of accounts, the number of accounts, and public records like liens and judgments. Payment history is weighted heavily, and "on time" is often defined as early: many commercial scores reward paying invoices before the due date. Unlike personal credit, a company can have several different scores across bureaus, and some lenders use their own models built from your bank statements instead.

Do these in order. Most owners can finish the first four in a month.

• Form a legal entity and get an employer identification number, so the business has an identity to build a file under.
• Open a business checking account and run all revenue and expenses through it. Lenders read statements first.
• Get a business phone line and address listed consistently everywhere; mismatched records fragment your file.
• Open accounts with two or three suppliers that report payments, and pay them early. These trade lines are the foundation of the file.
• Add a business credit card, keep utilization under 30%, and pay in full every month.
• Take a small term loan or line of credit once you qualify, repay it perfectly, and let the history compound.

A commercial score is one input, rarely the deciding one. Most lenders look at your personal credit, three to six months of business bank statements, time in business, revenue, industry and existing debt, and then at the business file to confirm the story. A personal score in the high 600s or better, combined with clean statements and a growing business file, is what moves you from online pricing toward bank pricing. Business credit does its most visible work on larger amounts, longer terms and the removal of a personal guarantee.

Paying suppliers late, even by a few days. Mixing personal and business spending in one account. Applying to many lenders one after another, which stacks hard inquiries on your personal report. Letting a small tax lien or judgment sit unresolved. Closing your oldest accounts. And the quietest one: never checking your business file, so an error from a supplier sits there for years. Pull each bureau's report at least once a year and dispute anything that is wrong.

If you are early, start with the entity, the bank account and two reporting suppliers this month. If you are already borrowing, make the next loan the one that builds the file: on FundLine, an application does not affect your credit score, and the lenders in our network report clean repayment, so every on-time payment lowers the cost of the loan after it.