Business credit rating bureaus track, analyze, and report on business credit transactions, often in the form of scores and ratings. Like personal credit ratings, business credit ratings can have a bearing on whether or not you can secure financing or trade credit, how much you can acquire, and whether or not you can leverage more favorable terms. Unlike personal credit ratings, regularly monitoring your business credit rating can actually help you improve your score.
Business credit scores range from 0 to 100; scores of 75 and higher are considered excellent ratings. Numerous factors go into this score. Not only are payment histories important, but also the length you’ve had a credit profile, the amount of credit you have remaining on credit cards and lines of credit (also known as a balance-to-limit ratio), and more.
Banks and other lending institutions always attempt to determine the likelihood that a given loan or credit candidate will pay them back. Credit ratings are unsurprisingly one of the first places they turn in this process. So how can you establish and build your business credit rating?
How to Establish Business Credit
The obvious initial step in the process of building business credit is to first have a business. This in itself can be a time-consuming process, but it is important to officially separate your business from yourself—both with regard to building business credit and to protecting yourself from personal liability.
Forming an LLC or other corporation may be looked upon more favorably than operating as a sole proprietorship for the purposes of establishing business credit. Whatever legal structure you choose for your business, you will need to acquire a federal tax identification number from the IRS, as well as all the necessary licenses and permits required for your business in your particular state.
When you have met all the requirements for forming your business, you will then want to register with a business credit bureau. Business credit bureaus collect and compile business credit transaction data, but since this information is provided voluntary, it is up to the business owner to take initiative in submitting it.
Dun & Bradstreet is one of the most popular choices for business credit reporting as it also provides a unique, nine-digit D&B D-U-N-S® number that many businesses use to identify and research potential business partners.
How to Monitor and Improve Your Business Credit Rating
After setting up a business credit profile with a credit reporting agency like Dun & Bradstreet, you can then submit payment histories, financial reports, credit references and other pertinent information to begin building your credibility. Demonstrating a track-record of financial reliability and stability can give your business access to financing when it needs it most. Both banks and other credit-issuing businesses look favorably upon businesses that can prove their creditworthiness.
There are also services available that allow you to see what other businesses see when they request information, giving you insight into what you might improve about your credit profile.