Building business credit from zero

Before any bureau will open a file, the business needs to exist as its own entity. Form an LLC or corporation, because a sole proprietorship keeps everything tied to your personal Social Security number. Get an EIN from the IRS at no cost, open a business bank account in the exact legal name, and register for a D-U-N-S number with Dun & Bradstreet, which is also free.

Lock down consistency. Your legal name, address, and phone number should match exactly across the state registration, the IRS, the bank, and every application. Mismatches are one of the most common reasons a file gets split or an application gets flagged.

Credit is only built by accounts that report to the commercial bureaus, and many vendors do not report at all. Start with net-30 vendor accounts from suppliers that report to D&B or Experian, buy things the business actually needs, and pay the invoices early.

Add a business credit card next. Even a card underwritten on your personal guarantee helps, as long as the issuer reports account activity to the business bureaus. A handful of reporting trade lines is usually enough to generate an initial PAYDEX.

Vendors fall into loose tiers. Starter suppliers grant small net-30 lines to brand-new businesses, then retail and fleet accounts open up, and finally bank lines and larger cards come within reach once you have a track record. Work up the tiers in order, because applying for a big line against an empty file just earns a decline and a hard inquiry.

Payment timing is the single biggest driver of a PAYDEX, and paying before the due date is what pushes the score above 80. Set invoices to pay early rather than on the last day.

On revolving accounts, keep balances low relative to the limit. High utilization drags down the risk-model scores at Experian and Equifax the same way it does on personal credit.

A usable business file generally takes several months to a year of consistent, reported activity to develop, not weeks. Anyone promising an 800 business credit score in 30 days is selling a shortcut that does not exist, and the shortcuts on offer often involve shelf corporations or falsified data that create far bigger problems.

Check your files periodically at each bureau so you can catch errors, like a misreported late payment or a lien that was satisfied but still shows open, and dispute them.

Once the file has depth, layer in larger instruments: a business line of credit, an SBA loan, or equipment financing. Each new tier reported back to the bureaus raises your capacity for the next one. The goal is a file thick enough that lenders will eventually underwrite the business on its own numbers and, for some products, drop the personal guarantee.