How to establish a strong business credit profile for your startup

Founders are drawn to the startup journey because it’s one filled with opportunities for innovation, building, and growth. But alongside the appealing elements of growth — creativity, strategy, experimentation — come the more tactical elements; the basic best practices that can set your company up for success. Building business credit is one such element.

Yet many founders may not even understand the importance of business credit. In the early days, your finances are tightly tied to your personal credit profile, such as applying for business credit cards or loans. But it’s important that your business start to build its own strong credit history, so you have access to more credit and financing options in the future. 

Key takeaways:

Building business credit early gives your startup more financing options, protects your personal assets, and signals credibility to lenders, vendors, and partners.

Startups are unique in that a lot of funding comes from investors, whether it’s through priced rounds, SAFEs, or friends and family. A strong business credit profile can be an invaluable piece of the puzzle — not only helping expand access to capital but also playing into things like lease approvals or lower insurance costs. It can pave the way for greater success in the future by giving you a solid foundation to build on — and to fall back on when needed.

Yet, despite how important a strong business credit profile can be to the success of your business, just under half (45%) of SMB owners don’t even know they have a credit score, let alone knowing how to build business credit and maintain it.

If you’re still getting acquainted with how your business credit score can help your business, here are a few of the key benefits to keep in mind:

Increasing access to capital

Startups often require additional capital to fund their operations and growth. Building business credit opens doors to various financing options, including business loans, venture debt, lines of credit, and business credit cards. With a strong credit profile, you can secure favorable terms and interest rates, ensuring that your startup has the financial resources it needs to thrive.

Minimizing personal liability

Since a core component of building business credit is separating personal finances from business finances, an added benefit of building business credit is that it allows you and any of your co-founders to protect yourselves from personal liability in regard to any debts incurred on behalf of your business.

Additionally, if you mix business and personal finances, lenders see it as a risk. You won’t have a clean record of your business’s finances, which makes analyzing your business’s creditworthiness messy. It can also signal weak internal controls.

Establishing credibility with partners and vendors

Your startup's credibility can make or break potential partnerships, collaborations, and relationships with vendors, suppliers, and clients. A robust business credit profile can instill trust in your business partners, indicating that you're a reliable and stable company that will meet its financial commitments. In improving relationships with vendors, it can also lead to cost savings and improved working capital management.

Helping to navigate economic uncertainty

When running a startup, economic ups and downs are par for the course. In addition to creating periods of atypical cash flow, these moments in time can also throw a wrench into things like fundraising. Granted, there are several best practices for fundraising in uncertain markets, but the reality is that it helps to have a financial safety net when times get tough. With access to credit, your startup can navigate unexpected crises, cover operational costs, and seize opportunities even when cash flow is tight.

Supporting long-term growth

For a startup to evolve into a successful, sustainable business, long-term planning is crucial. A solid business credit history can open the door to bigger opportunities, such as expanding into new markets, acquiring other companies, or pursuing strategic partnerships. It's an invaluable asset for startups with ambitions of long-term growth and prosperity.

Establishing your business credit profile is pretty straightforward, and largely tracks to the process of setting up your business. Here’s how to go about it:

• Incorporate your business: By setting up a separate business entity, you’re successfully separating your business and personal finances, allowing each to exist independently of the other.
• Get an EIN: Apply for an employer identification number (EIN) from the IRS. This unique identification number for your business is essential for opening business bank accounts and establishing credit relationships with vendors. You can apply for an EIN for free here.
• Open a business bank account: Maintain a dedicated business bank account to keep your personal and business finances separate. This also helps establish your startup's financial history. Make sure when selecting the bank account to take your business’s unique needs into consideration, ensuring that you pick the best account for your business.

Register with a credit bureau: Finally, you’ll want to get your business set up with at least one (but preferably all) of the three main credit bureaus for businesses: Equifax, Dun & Bradstreet, and Experian. Each of the bureaus will have its own process for getting you in the system. For example, when you register with Dun & Bradstreet, you are assigned a unique D-U-N-S number, which is a nine-digit identifier that will correspond directly to your business credit profile. And just like personal credit scores, each bureau will produce a slightly different report based on how the bureau is collecting inputs and calculating your score. You can sign up for a D-U-N-S number here.

While the major business credit bureaus have proprietary models to calculate their scores, they generally look at the same criteria — and it's similar to personal credit scores.

• Consistent, on-time payments
• How much of your available credit is utilized
• The age of your credit accounts
• Public records, such as liens or judgments

The business credit bureaus may also look at the number of employees you have, the number of years you’ve been in business, and whether or not you’re in a high risk sector.

Personal credit uses the same credit score range across all bureaus (300 - 850), but business credit scores vary.

Once you’ve established your business credit profile, there are a number of things to keep track of and stay on top of in order to build and maintain a strong profile and business credit score. Just like in the case of personal credit, there are several factors that tie into your business credit score, including payment history, company size, credit utilization, and age of your credit history.

In the case of business credit scores, there may also be an added factor regarding industry — specifically in regard to high-risk industries that might find it harder to establish a strong credit profile because of heightened scrutiny.

To build and maintain a strong business credit score, here are a few steps you can take:

Open a business credit card

Some of the benefits of business credit cards include separating personal and business finances, protecting you against fraud, enabling smarter spending across the organization, offering cashback and perks — and building your business credit. Choosing the right business credit card for your company and following the usual best practices when using it — keeping utilization low and making timely payments — is a straightforward way to start building up your credit history and establishing a strong score.

Make payments on time — or early

Late payments can negatively impact your credit score, especially if you have a pattern of late payments on your credit history. For that reason, staying on top of payments for loans, credit cards, and bills is one of the most critical factors in building a strong credit profile. In some cases, it even helps to get into the habit of paying early, not just on time.

When looking at the Dun & Bradstreet PAYDEX score, for example, you’ll see that achieving a strong score is possible simply by paying on time — but achieving the best score is only doable if you’re regularly paying early. That said, some lenders may have penalties for paying early, so it’s important to look at your loan or credit terms carefully to understand the rules and fees around repayment.

Work with lenders that report payments

Consistently making loan or credit payments on time is an important part of establishing a strong business credit score — but it won’t have the necessary impact unless your lenders are reporting back to credit bureaus, so check to make sure that's the case. For example, with our Mercury IO Mastercard, we report IO payment history to Experian, Equifax and Dun & Bradstreet. Since IO is a charge card requiring balances to be paid in full and on time each payment period, our reporting may have a positive impact on your business credit score.

Work with vendors that report payments

Some vendors or suppliers have “buy now, pay later” terms like Net 30 (payment is due within 30 days). Office supply companies, wholesalers, or utilities may report your payment history to business credit bureaus.

This is an often-overlooked way to build a strong credit profile. When you pay vendor invoices on time, it adds a positive track record to your business’s credit profile.

Manage debt responsibly

Accumulating excessive debt can be a blow to your credit profile and make it difficult to obtain additional financing in the future should you need it. Make sure to approach loans and credit with strategy in mind in order to manage your debt effectively. Ways to do this include:

• Creating a detailed business plan that lays out the purpose of debt, plans for using it to generate revenue, and a clear path to repayment.
• Managing interest rates by opting for loans with lower interest rates where possible.
• Choosing the right kind of debt for your business, whether it’s a bank loan, a line of credit, or venture debt.

Utilizing too much of your credit is a red flag for lenders. If you have $50,000 of business credit available and are using $49,900, a lender might think that your business is relying on credit because you have cash flow issues. Lenders see maxing out your credit as a risk, and it can lower your business credit score. 

Regularly monitor your credit

It’s important to keep an eye on your credit profile to make sure that you’re on track to building up your score and that there aren’t any inaccuracies or negative surprises that are putting your business at risk. For example, regular monitoring allows you to swiftly detect any unauthorized or fraudulent activities related to your business credit. If someone is using your business's identity for fraudulent purposes, early detection can prevent further damage and legal complications. It’s also possible that errors might be impacting your score, so regular monitoring allows you to flag those mistakes and correct them in a timely manner.

To stay on top of your score, it’s typically best to review your score once a quarter, which you can do by requesting a report from one of the three major business credit bureaus: Equifax Business Credit, Dun & Bradstreet, or Experian Business Credit Report. In the event that you catch anything that seems incorrect, you can reach out to the credit bureaus and they will help to address and correct the error.

Get started with a business credit card

Strong business credit is a powerful asset for scaling startups — and the IO Mastercard from Mercury is an invaluable tool in shaping your company’s credit profile.

Beyond helping build up your business credit score by regularly reporting monthly payment history to Experian, Equifax and Dun & Bradstreet, the IO Mastercard is a key that opens new doors for your startup with a host of benefits, including unlimited 1.5% cashback on all spend, powerful spend management features like merchant-locked cards and custom spend limits, fraud protections, physical and virtual cards for your whole team, and essential integrations with tools like Quickbooks.

Explore the Mercury IO Mastercard — and discover new possibilities that await on the other side.

Why does business credit matter?

Business credit impacts your company’s ability to get loans, credit cards, and favorable terms with vendors. With strong business credit, you won’t need to rely on your personal credit score.

How can you build business credit without using personal credit?

Some lenders will give you business credit (like a credit card) based on your business’s financial performance, such as your revenue and cash reserves. In these instances, the lender won’t rely on your personal credit score or social security number. 

How long does it take to build business credit?

Once you start working with lenders or vendors that report to business credit bureaus, you can start to see your business credit profile in 30-60 days. However, it takes time to establish a proven track record of timely payments. Meaningful credit history might take 6-12 months to build.

Do I need a D-U-N-S number?

While a D-U-N-S number is not legally required to run your business, many lenders, vendors, and other creditors use Dun & Bradstreet to review your business credit. In order to have a Dun & Bradstreet profile, you need a D-U-N-S number.

How often should I check my business credit score?

You should check your business credit score quarterly through Dun & Bradstreet, Experian, and Equifax. That way, you can catch errors and track your business’s progress toward building a strong credit profile.