How to Build Business Credit in 2024

6 tips to build excellent business credit.

Updated: May 21, 2024
Matt Crabtree

Written By

Matt Crabtree

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Credit is often associated with major purchases like a home or vehicle loan, but it also plays an important part in the success of your company.

Good credit also makes it easier to get access to more everyday premium services in your bank of choice. You can learn all about how to boost your business credit score, and why, in this article.

What is a credit rating?

Lenders evaluate applicants for loans using tools like credit scores. The score is an indication of your company's creditworthiness and payment habits. You want as high of a score as possible, which might be anything from 0 to 100. This demonstrates to potential lenders that they may provide loans to you with less concern. 

Credit scores are based on a number of elements, some of which include:

✔️ Whether or not your company has filed paperwork with Companies House

✔️ Financial institutions concerned 

✔️ Your personal information, as stored by the Registry Trust, including County Court Judgements (CCJs)

✔️ Your credit report

It's crucial to remember that the parameters used to determine your credit score might change based on the CRA or lender you go through. Because of these differences, your credit score may be calculated differently by each CRA. 

Building business credit — What's the big deal, anyway?

Lenders use credit scores to determine whether to provide credit to you, the amount extended, and the interest rate attached. With this knowledge in hand, they may make a well-informed loan choice and lower the risk to themselves. 

Creditors and vendors might use your credit score against you in bid competitions and contract negotiations, both of which are very crucial. When you apply for a new account at a financial institution, they will examine your credit history as well. 

Why does it change?

Lenders will scrutinise your firm's credit history in great detail to form an accurate financial picture of your company. If you have a County Court Judgement (CCJ) against you, they will want to know that right away.

Whether you have previously asked for credit, they will check to see whether you abided by the agreement's terms and conditions. 

In addition, lenders will consider

  • 📖 Who owns the company and how they got there.
  • 📖 Financials of your company.
  • 📖 Any form of secured trade credit.
  • 📖 In the past how many times have you applied for a loan?
  • 📖 Any currently held credit.

Your business may have trouble obtaining credit in an area where there is little to no borrowing history. That's because commercial lenders look to financials to determine whether or not you'll be able to repay your loan on time and in accordance with the conditions agreed upon in the loan agreement. 

Advice on how to raise your company's credit rating

To buy new equipment, stock up on inventory, and grow, many small companies depend on credit of one kind or another. Short-term loans may be used to pay for anything, including payroll.

Lenders often check a company's credit rating and score with the three main credit bureaus to mitigate their risk of not being reimbursed on time. Banks may use these metrics to decide whether or not to provide credit and, if so, at what interest rate. For example, business credit cards will give nearly an instant decision on your application whereas a business loan can take weeks.

When applying for contracts or pitching their services to new clients, many companies also have their company credit checked. Businesses need to know that they're partnering with reliable companies that won't suddenly collapse if they don't meet their deadlines or fulfil their promises.

In what ways might a company's credit ratings and scores be improved? Your capacity to pay back loans is a factor, but there are other factors to consider as well. Following these guidelines, you'll be well on your way to establishing or enhancing your company's commercial credit record.

Be wary of quick fixes; a business credit file is meant to show you how the firm has fared financially over time.

#Tip 1 — Create a legal entity for your company

Credit should be a primary consideration for entrepreneurs far before they launch their businesses. That's because the way a company is organised may have an effect on how reliable a borrower or partner thinks it will be. 

When it comes to creating preliminary company credit scores and ratings, corporations and Limited Liability Companies (LLCs) are often seen as “blank slates” because of their separate legal status. When building business credit, it's preferable to keep personal and company finances separate.

A sole proprietorship, on the other hand, will forever intertwine your personal credit with that of the company. Thus, lenders and prospective business partners may evaluate the company based on your personal credit score. Any mistakes you've made in the past, or make in the future, with your own finances might hurt the company's ability to get funding or get contracts.

#Tip 2 — Apply for a DUNS number from Dun & Bradstreet

Dun & Bradstreet offers a free D-U-N-S Number that serves as a unique identity for your company. Have this ready before asking for a loan, since some lenders and possible business partners will use it to research your company's credit history.

#Tip 3 — Get your company set up with a bank account

Use a separate corporate bank account to let people see your firm as separate from your personal finances. Establishing a banking history is another benefit of opening a business account. You will already be a client when you apply for credit with them.

#Tip 4 — Pay your bills on time

Both prospective investors and business partners need assurances that they will profit from working with you. To keep a positive image of your company's financial health on its credit report, it's important that all payments be made on time, if not ahead of schedule. 

If debts aren't paid, creditors may report the company to consumer reporting authorities. The ability to get credit or establish confidence with another business might be harmed by a history of delays or defaults.

#Tip 5 — Request Dun & Bradstreet Trade References from suppliers

To produce their final offering, most companies will buy supplies from suppliers. Many vendors provide trade credit to commercial clients but stipulate a payment due date.

Although many start-up company owners look to bank loans as their major source of finance, trade credit may prove to be an invaluable resource. You don't have to pay upfront, and paying your vendors on time shows that you have good financial judgement.

If your company is paying its bills on time, you may improve its credit score by having its suppliers serve as Trade References. Many different types of company credit ratings and scores, such as Dun & Bradstreet's PAYDEX®Score, use payment history information from Trade References.

When requesting financing, a new company may not have a lengthy payment history or a history of bank loans to cite. However, favourable payment experiences might serve as a substitute and show that the company is reliable. Having a history of fiscal restraint might help your case.

#Tip 6 — Request Dun & Bradstreet Trade References from suppliers

Keep an eye on your company's credit ratings and scores.

Establishing a solid credit history for a company takes more than just a single step. Your evaluations and scores may change after learning new knowledge, either favourably or badly.

A programme like Dun & Bradstreet's Credit Monitor, or accounting software, may assist business owners to keep an eye on their company's credit score and prevent any unwelcome shocks.

Making progress on improving your company's creditworthiness takes time. In order to put their best foot forward whenever a lender or possible business partner checks the owner's business credit record, responsible company owners should try to develop and maintain respectable ratings.

How to build business credit? — The Verdict

Your company would profit from a strong credit rating, but how might that be attained? Finally, here are some recommendations to think about — additional advice to raise your company's credit rating: 

Be punctual with your payments.

If at all feasible, make an effort to pay bills on time. If you don't do this, it will hurt your credit score since credit is a part of the conditions of payment.

Submit your documents on time.

Accounts and tax returns must be filed on time. Lenders may see delays in these filings as an indication that you are experiencing financial difficulties.

Stay away from decisions made at the county court.

No one wants a CCJ entered against them, but if one is, it will show up in their credit history. It's in your best advantage to make timely payments on any that you may get.

Restriction of credit requests.

Applying for too much credit too quickly might send the message to lenders that you're having trouble paying your bills.

Request a price estimate.

Instead of applying for company financing, you should request a “quote”. This easy fix might help you cut down on the number of times you apply for credit.

Never stop updating key information.

If you move or modify your company's status in any way, be sure to notify your customers, suppliers, Companies House, and business directories. If your company's information is out of date or contradictory, customers may lose trust in you.

Keep track of your partnerships.

It's important to monitor your suppliers' and clients' credit standings as well. If one of your suppliers goes bankrupt, you may take precautions using this data to reduce losses.

Related Guides:

FAQs

Does a company's credit score work differently than a person's?

Will applying for a credit card or loan for my company affect my personal credit rating?

Where can you go to see what your company's credit rating is?

When establishing company credit, what are some key questions to ask?

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