How to Build Corporate Credit

Co-authored by Kathy Duong

Last Updated: January 31, 2023 References

There are several reasons why you might want to build corporate credit, but the major one is that corporate credit allows you to get loans and other forms of funding without having to use your personal credit. When corporation owners use their personal credit to secure funding or equipment, the lines between personal liability and business liability blur. This means that if the business can’t make the payments, the individual must still find a way to pay the debt, or it may negatively affect his or her credit report and score. With this in mind, here are a few ways you can build corporate credit.

Part 1

Part 1 of 3:

Setting Up Corporate Credit

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Incorporate your business. In order to take advantage of corporate credit opportunities, you need to establish your business as a corporation. Doing so will also legally separate your finances from your business's and distance you from any liabilities the business may face.^{[1]
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U.S. Small Business Administration
U.S. government agency focused on supporting small businesses

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- The exact incorporation process will differ based on your state's laws.
- Business owners have several choices when it comes to structuring a business, so you may want to talk with a lawyer on which corporate structure works best for your business.
2
File for an Employee Identification Number (EIN). This number, which can be obtained from the IRS, allows your corporation to legally acts as its own taxable entity. This means that your corporation will now have to file separate tax returns and can now build its own credit.
- To establish your personal credit, companies rely on your social security number. You can use an EIN in place of your social security number to begin to build corporate credit.
- Your EIN will be used when your business's corporate credit is reported and should be used when applying for any type of credit.^{[2]
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  U.S. Small Business Administration
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- Once you have an EIN, make sure your corporation is listed with the credit bureau Dun & Bradstreet. Being registered with this bureau is the basis of earning corporate credit.^{[3]
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Create a separate phone line for your business and register the number under your business's legal name. Make sure that this number appears on any documents you create for the business and is used in all business communication. This doesn't have to be a landline; it can be an internet phone line or cell phone as well.^{[4]
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4
Obtain banking and credit card accounts for your business. By separating your business and personal banking accounts, you begin to build a business relationship with your banking institutions. This can help you once you decide you want to apply for funding through your corporation.
- Make sure to pay off your business credit card using your business's bank account.
- Most credit card companies offer business accounts.^{[5]
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Part 2

Part 2 of 3:

Building a Credit History

Even though your corporate credit will be built separately from your personal credit, your own creditworthiness may factor in a bank's decision to lend to your business. This is especially true early on, before you have built up corporate credit. Banks may also check the personal credit of anyone with more than a 20 percent stake in your business, including and investors or partners. Make sure that your own credit score and those of your investors/partners are at least at 650, if not higher.^{[6]
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2
Apply for credit immediately. Even if you don't immediately need a loan, start applying for credit immediately when you start your business. This doesn't have to be a substantial loan, but can simply be a business credit card, trade credit with vendors, or a small bank loan. This will help you build up a credit history as quickly as possible.
- Note that you may have to be in business for up to two years before banks will consider giving you a more substantial loan.^{[7]
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When you buy materials or supplies from vendors, you usually have the option to buy on credit. This allows you to pay several weeks after you receive your shipment. Contact the vendor and see if they offer this type of service. If they do, get it set up and make sure that the vendor reports your payment history to the credit bureaus. This will help boost your credit score and also gives you more payment flexibility.^{[8]
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EXPERT TIP

"Pay your vendors promptly, then use them as a reference when you apply for credit."

Kathy Duong
Accountant
Kathy Duong is a certified accountant who has been working as an accountant for over 25 years. She received her BS in Finance and Accounting from California State University, Los Angeles in 1992.

Kathy Duong
Accountant
4
Use your credit as soon as possible. When you are able to secure any kind of credit, be sure to use it as soon as you can. You aren't building up any credit history if you don't use your credit. Start small and only charge manageable amounts to business credit cards or trade credit lines. That is, make sure you can easily repay these amounts so that your credit history will reflect nothing but proper repayments.
- When you can, request an increased credit limit, even if you don't need it. This will decrease your credit utilization ratio and improve your creditworthiness.^{[9]
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Keep track of credit profiles. Corporate credit scores are much less standardized than personal ones; each different reporting agency uses methods for calculating your score and may report different data. Potential lenders usually check all of the major credit reports, which are from Experian, Equifax, and Dun & Bradstreet. This is why it is important to check on these reports regularly and make sure they reflect the correct information.
- Some of these reporting agencies will allow you to edit the information reported on the site, like how long your company has been in business. Make sure this information is as correct and up to date as possible.^{[10]
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- Corporate credit scores are measured different than personal ones. For example, the score provided by Dun & Bradstreet is the Paydex score, which a rating from 1 to 100. On this scale, scores over 80 indicate good credit.^{[11]
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It goes without saying that you build good credit by paying your creditors back in full and on time. However, in some cases, you may be able to build even better credit by paying creditors back early. If you have the ability to do so, paying back creditors a few days or week early can help you achieve truly perfect credit.^{[12]
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Part 3

Part 3 of 3:

Working With Creditors

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Work with more than one lender. When you're starting out and building credit, you'll be at the mercy of the lender's policy when they're deciding whether or not to lend to you. These policies, specifically the required credit score or revenue that your business has to have to qualify for a loan, are liable to change without warning. This could leave you without a source of capital when you need it most. To prevent this, try to vary your creditors.
- For example, you could have both a company credit card and a lender for business loans. One of these could be a local or community bank and the other a national bank.^{[13]
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While many lenders do report your payment history to credit bureaus, they are not required to do so. So before you take out a loan or credit line for the purpose of building credit, be sure to ask the lender if they will be reporting to the credit bureaus. This usually isn't a problem for banks, but may be an issue if you borrow from less-reputable lenders, like online lending platforms.^{[14]
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Consider lenders other than banks. If you're having trouble securing loans from traditional banks, think about the fact that there are other sources of capital that you can tap in to. For example, you can take out a secured loan from an asset-based lender. This type of loan uses your business's assets as collateral and will have lower credit restrictions that bank loans. Alternately, you can use factoring, which allows you to use your accounts receivable as collateral.
- Using either of these options will help you obtain cash and build credit. However, be warned that if you don't make your payments, these lenders can seize the collateral on the loans.^{[15]
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Tips

When you fill out an application or apply for credit, use your business address and phone number, as well as your EIN. The less you use your personal information, the more you build corporate credit.

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Use your business assets rather than your personal ones to secure loans and other types of credit that require collateral.

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How to Build Corporate Credit

Steps

Setting Up Corporate Credit

Building a Credit History

Working With Creditors

Expert Q&A

Tips

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