Business credit score is one of the most important pieces of financial information about your company. It is used for commercial organizations in a manner similar to the way the personal credit scores are used for individuals. 

In today's highly competitive market, a low business credit score can result into higher interest rates and potential problems with lenders and suppliers. Vice versa, a solid business credit score can help you maintain or expand your business. That’s why business owners need to establish and maintain a positive business credit score.

Business credit score will allow your business to function as its own entity. Just as a credit company looks at your FICO score before approving your loan application, business lenders rely on a business credit scoring system to determine the financial health of a company. 

Of course, sometimes you can use your personal credit score rather than a business credit score when you are getting a business loan. However, if you have bad personal credit rating, you won’t want banks to take it into consideration. Establishing a business credit file will allow you to limit the use of your personal credit score. 

If your personal credit rating is excellent and you think that you can rely solely on it, think about potential problems it can trigger. If your business fails and can’t pay off all debts, your personal credit score will be seriously damaged. It will affect your ability to qualify for a car loan or mortgage, get low insurance rates or even find a new job. 

In addition, many creditors have started to move away from taking into consideration only personal credit when judging the financial responsibility of a business. They believe that personal credit is not a good tool to predict future business behavior. That’s why they often use new blended business scoring tools that integrate personal and business credit attributes to evaluate potential risk. 

The most popular business credit scoring system in the US is Paydex from Dunn & Bradstreet. It calculates commercial score based on whether a business makes timely payments and meets payment terms of lenders, suppliers and vendors. 

While a personal credit score can range from 300 to 850, a business credit score ranges from 0 to 100. If your company has 80 points, it means that it meets payment terms and pays bills on time. Business scores above 80 mean that your company makes payments during the early payment discount period. A business credit score of 70 indicates that you are paying your bills 15 days late; with a score of 50 you are typically 30 days late.

Establish your business credit score

Business credit score is not established automatically. You need to take some measures to prove the financial responsibility of your company. There are 5 steps that will help you establish your business credit and ensure the long term success of your business. 

1. Form a Corporation or Limited Liability Company.
The business credit profile can be established as a Sole Proprietorship, Partnership, Corporation or LLC (Limited Liability Company). However, if you run your business as a Sole Proprietor or Partnership, your personal credit information may be included on the business credit report and vice versa. It happens because Sole Proprietors or Partners in a Partnership are personally liable for the debts of the company. 

Corporations and LLCs provide their owners with liability protection, so it is possible to build a separate credit profile. Many people think that just because they are a single person or family, rather than a large business, this type of organization is not suitable for them. It is not so. Incorporating can be very beneficial for any type of business.

2. Obtain a Federal Tax Identification Number with the I.R.S. 
In order to establish business credit, Federal Tax Identification Number (also referred as an Employer Identification Number, or EIN for short) is a must. You can apply for it through the Internal Revenue Service. Contact the nearest local IRS Office, or call the IRS Hotline at 800-829-4933. You will need to fill out IRS Form SS-4.

3. Get business licenses for your type of business and location
Make sure to apply for any business licenses, permits, and registrations that you need to have for running business in your area. You don't want to get in trouble or find yourself in court because you didn't follow the rules, right? If you open a bank account for your company, make sure that it is opened not under your name, but under the official business name. 

4. Register with the business credit bureaus
There are a few major business credit bureaus in the United States that provide information about your business score. Try to establish a presence with all these companies. They are:
•    Dun & Bradstreet
•    Experian
•    Equifax

Over 70 million businesses are registered with D&B. In order to establish a profile with Dun & Bradstreet you need to obtain a 9-digit DUNS number. It is free of charge. You can apply at the D&B website. 
The DUNS number is intended to identify each business in the D&B database. The number is random and the digits don’t have any special meaning.

5. Do business with companies that report your payments to the business credit bureaus 
This can be one of the most difficult steps in the credit-building process. Your business needs trade references from companies that report your credit history to the credit reporting agencies. Make sure that your vendors and suppliers are reporting your business payment history to one of the major credit bureaus.

If your existing vendors do not report to the credit reporting agencies and you can’t encourage them to do so, you can switch vendors or take on additional vendors. Many of the credit bureaus have lists of suppliers who report their payment experiences to them. For example you can make an order from an office supply company. 

After you have placed several orders and made payments on time, you can use your DUNS number to apply for a business line of credit with it. The more vendors report a good payment history to the credit reporting agencies, the better your business credit score is likely to be. 

It is not recommended to work with companies that sell trade references. For example, they may offer you to sell a trade reference for $500,000 and then report positively to the business credit bureaus in exchange for a fee (typically 5% - 20% of the amount of the trade reference). This practice is not legal. 

Once you have a number of businesses that are reporting your company’s payment experiences, you will establish a business credit score. Now it is important to keep it active. If you have a business score of 80, but there is no ongoing activity, the score may drop.

Building a business credit score takes plenty of time and effort. There is no way to rush this process and get 100 points in one month. However, the benefits of getting loans with corporate terms and lower interest rates are well worth it. 

Personal credit scores and business credit scores have one more thing in common. Creditors can be rather sloppy about how they report your payments, so it is wise to monitor your business credit report regularly to be aware of possible errors or negative data. By learning more about the factors that drive your current company credit score, you can start to manage your credit behavior more effectively. The best guideline is to make all your payments on time.

While you're building your business credit, don't forget about your personal credit score. Incorporating your business will protect your personal assets, but it will not eliminate your personal bad debts. A business lender will often check a personal credit report of an owner (and of any other people that will be principal parties to the transaction) before approving a corporate loan.