Why Business Credit is Important – Part I

May 8, 2017

A company’s business credit is its perceived ability to make good on obligations according to the terms of its contracts.

This is often expressed as a collection of scores and ratings found in a business’s credit file. When a company is said to have good business credit, it usually means the organization has a record of responsible financial behavior. Poor business credit is often the result of late payments, defaults, liens, or other financial woes. Business credit bureaus compile payment information and public records into various scores and ratings. Taken together, these comprise the business’s credit file.

How to Build Business Credit

Whether you’re new to building your business credit or looking for ways to improve your profile after having been denied a contract or loan, there a few steps you can take to help impact your scores and ratings.

Starting a Business

  1. Choose a Business Structure – Establishing your business as a separate entity is the first step to separating your business and personal credit. Not sure why that’s important?
  2. Get an EIN – Get an EIN - You’ll need an EIN to file your taxes and open a business bank account (step 3). Banks and potential business partners may also request it when you fill out paperwork. Having this number for your business is an important step in establishing your company.
  3. Make Sure You Have a D&B D-U-N-S Number and SIC (Standard Industry Code) – Your company’s D-U-N-S Number identifies your business credit profile and helps other companies pull your business credit report.
  4. Separate Business and Personal Credit – When purchasing personal and professional items, ring them as two separate transactions on separate receipts. Separate business use items from personal use items. Preferably, have and use a business credit card and checking account for business purchases. If the user Pierces the Corporate Veil, a plaintiff can go after personal property and finances, because the business owners treat personal and professional finances and property as one pool without distinction or delineation between the two.

Established Business

  1. Update Your Business Information – Incomplete or inaccurate business information can impact your business credit scores and ratings. It’s easy to update your information with Company Update.
  2. Pay on Time (Or Early) – When you don’t pay on time, vendors can submit negative trade references which can affect your business scores & ratings.
  3. Ask for Trade References – If you have vendors that you know you pay on time and that you have a good relationship with, ask them if they already submit trade references to D&B. If they don’t, see if they will.
  4. Monitor Your Scores & Ratings – You’ll want to know if there have been changes to your business credit scores and ratings. New information like liens, judgements, bankruptcies, or negative trade references can affect your profile.
  5. Monitor Inquiries – When a business pulls your business credit file to help determine if your company qualifies for a loan or can be trusted with a contract, it’s called an inquiry. The names of the companies pulling your report are confidential, but you can find out when an inquiry has been made and what industry the inquiring company is in.

Scores and Ratings

An organization’s business credit file is a collection of scores and ratings that allude to an organization’s ability to make good on contractual obligations. These scores and ratings, which are outlined below, can help a business in numerous ways: a business can use these metrics when deciding to contract with a supplier, a bank can use the information in a credit report when deciding to offer a loan, and business owners can use the scores themselves in an attempt to improve their credibility. Whether you know what’s in your business credit file or not, it is important to understand that other businesses may be using the information to make critical decisions that could help or possibly hinder your business.



i The opinions, information and advice provided by Program Design Solutions and its Credit Advisors during business credit counseling sessions, events, tradeshows, podcasts, webinars and in articles and blog posts (collectively the “Information”) are provided “as-is”. Such Information may be authored by a third party and do not necessarily reflect the views or opinions of Program Design Solutions. Nothing stated or implied in the Information should be construed to be legal, tax, or professional advice. Program Design Solutions makes no representations or warranties, express or implied, with respect to such Information and the results of the use of such Information, including but not limited to implied warranty of merchantability and fitness for a particular purpose. Neither Program Design Solutions nor any of its parents, subsidiaries, affiliates or their respective partners, officers, directors, employees or agents shall be held liable for any damages, whether direct, indirect, incidental, special or consequential, including but not limited to lost revenues or lost profits, arising from or in connection with a business’s use or reliance on the Information. Program Design Solutions provides the information within as a courtesy. Please consult an attorney, tax accountant or credit counselor for specific information that addresses your specific situation.

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