Savvy entrepreneurs often form limited liability companies (LLCs) for asset protection benefits, and to legally separate their business finances from their personal finances. But that’s just the start. 

There’s another step you’ll want to take after establishing your LLC: Build credit for your LLC. Establishing an LLC and building strong business credit can help your business qualify for a wider range of small business loan options. 

In this article, we’ll explore how to build business credit for an LLC, tips for building credit for your new LLC, and why it matters. 

The Importance of Building Credit for an LLC

After you start an LLC, it’s a good idea to focus on building credit. You want strong business credit for the same reasons you want a good personal credit history; you’ll have access to a greater number of financing options, you may qualify for lower interest rates, and good credit may even help you secure desirable working relationships. Where potential employers often check your personal credit during a background check, prospective partners or suppliers can check your business credit profile before deciding to work with your LLC.

Building credit for your LLC can also open doors to investment opportunities and potential partnerships. When seeking investors or considering partnership arrangements, having a strong credit history demonstrates financial stability, responsible financial management, and a lower level of risk. This can make your LLC more attractive to potential investors or partners who are looking for reliable and trustworthy business ventures.

Additionally, some insurance providers consider a company’s credit when determining premiums or coverage terms for various policies, like liability insurance or property insurance. A good credit history can potentially save your business money in the long run.

Steps to Build Business Credit for an LLC

Establishing business credit — and then building it up — takes a few key steps. Here’s a step-by-step outline of the process:

1. Establish your LLC: Start by legally forming your LLC business structure and getting all the necessary documentation, like the articles of organization, employer identification number (EIN), and business licenses. This step ensures that your business is recognized as a separate legal entity. Use a business formation service to simplify the process.
2. Separate personal and business finances: Open a separate business checking account for your LLC. This separation of finances helps maintain clear distinctions between personal and business expenses, which is crucial for building business credit and remaining compliant.
3. Get a DUNS number: You can open vendor credit or business tradelines to automatically receive a DUNS number. Or apply for a DUNS (Data Universal Numbering System) number from Dun & Bradstreet’s website. This unique nine-digit identifier helps track and establish your business credit. 
4. Get vendor credit: Start building your business credit by establishing relationships with vendors who offer credit and report your payments to the business credit bureaus (and Nav Prime gives you up to two tradelines, one from your Nav Prime payment and one from regular use of the Nav Prime Card*). Make on-time payments to these vendors to help establish a positive credit history.
5. Get the right business credit card: Apply for a business credit card in the name of your LLC from a card issuer that reports your payment history to business credit bureaus. Use it responsibly and make regular payments to help build a positive credit history. 
6. Pay bills on time: Ensure that all your business-related bills, like utilities, rent, and subscriptions, are paid on time. Consistent and timely payments can contribute to a positive credit history.
7. Review credit reports: Regularly track and act on your detailed business credit reports and scores from major credit bureaus with Nav Prime. (These are the same details lenders see). Check for accuracy and report any discrepancies promptly. Managing your credit allows you to stay informed about your credit standing and take corrective measures if needed.

Remember that building business credit takes time, so be patient and consistent in your efforts. By following these steps and establishing a positive credit history, your LLC will have a solid foundation for accessing financing, securing favorable terms, and growing its creditworthiness over time.

What Does A Healthy Business Credit Profile Look Like?

Your business credit file can help lenders and other companies evaluate how your business has handled financial obligations in the past. A healthy business credit history will include information about your payment history on accounts that report. Those accounts should demonstrate an on-time repayment history, or close to it. 

Balances on any loans or debts the business owes should be manageable, and there shouldn’t be any serious negative items such as collection accounts, bankruptcies or judgments. (If there are, they should have been resolved, ideally some time ago.)

Most lenders prefer to see no more than a couple of open UCC liens on the credit report. 

What Is The Fastest Way To Build Business Credit For An LLC?

You can begin to build business credit as soon as you form your business entity, even if you have a brand new business. You do that by doing business with companies that will report to business credit reporting agencies. 

There are three major business credit bureaus: 

• Equifax 
• Experian
• Dun & Bradstreet

These bureaus collect information about how business entities pay their bills. You’ll need to establish accounts with companies that report payment history to at least one of these bureaus then pay those bills on time. 

Examples of types of providers you can use to build business credit include:

• Vendor accounts
• Business credit cards
• Business tradelines
• Credit builder accounts
• Business lines of credit

Not every creditor offering these types of accounts will report. Some do, and some don’t. So always be sure to find out whether on-time payments will be reported. Nav Prime gives you up to two actively reporting tradelines reported to all major business credit bureaus so you can start building your business credit history right away.

When you formed your LLC, you should have requested and received an Employer Identification Number (EIN) from the IRS. (You can request an EIN for free.) While an EIN isn’t required to build business credit, you should use one when you apply for small business loans or financing. 

Before you apply for business credit, it’s a good idea to determine the address you’ll use for your business and to get a business phone number in your business name. Although this isn’t required, it can be useful for establishing the legitimacy of your business. 

Setting Up Net-30 Accounts For An LLC

Of the credit-building options listed above, one of the easiest is to get net-30 accounts with vendors or suppliers. These are accounts with other businesses that will let you purchase items you need in your business. 

Many vendors don’t require a good personal credit rating (they probably won’t even check your personal credit report), and typically don’t require a personal guarantee either. If your on-time payments are reported to business credit bureaus, you’ll start building good business credit. 

Find easy net-30 vendors that report here.

It’s a good idea to have two or three net-30 accounts that you pay on time. Credit limits may be small to start, but that’s fine. Your payment history is what matters most when it comes to establishing creditworthiness. 

After you have established vendor accounts, consider getting a small business credit card. Most small business credit card issuers report to at least one of the major business credit reporting agencies. 

Understanding Payment Schedules

When you get vendor accounts, or any type of account that reports to business credit, it’s critical that you pay on time. With business credit, payments can be reported if they are just one day late. That’s because rather than grouping late payments into 30-day buckets as with personal credit, most use “Days Beyond Terms.” If you are just a couple of days late your payment history can be reported as 2DBT. 

If you’re trying to establish good business credit scores, paying bills that report to your business credit reports on time is really important. 

Know Your Current Business Credit Score

If your LLC has been established for some time, you may already have a business credit report. You can find out by checking your business’s credit for free with Nav. 

The major business credit bureaus produce a variety of business credit scores. Dun & Bradstreet is well known for the D&B Paydex score, but there are other scores it sells. Experian sells the Intelliscore, and Equifax sells a variety of business credit scores. There’s also a FICO credit score for small businesses called FICO SBSS. 

It’s not unusual for a business to check their credit and find out they have a good credit score with one credit bureau, and bad credit (or a low score) with another. That’s usually due to the fact that companies may not report to all three major credit bureaus.

Join Nav Prime to get detailed information about your business’s credit health at your fingertips.

Business Formation: Is Your LLC Structured Properly?

If you took the DIY approach to forming your business entity, you may not be aware of the myriad requirements to properly maintain it. Fail to take these steps and creditors may “pierce the corporate veil,” which means they may come after your personal assets in the event of a lawsuit against the business. 

When it comes to the financial side of your business, a big risk many business owners take is mixing business and personal finances. 

While it’s not uncommon for small business owners to use their own money to fund their business as startups, far too many run their business expenses through their personal bank accounts and use personal credit cards for business expenses. 

According to a survey by Nav, 70% of small business owners without a business checking account were denied a business loan in the two years prior. 

Two important steps for separating your finances are:

• Get a business checking account and use it for your business revenues and expenses. Pay yourself from the business then pay your expenses from personal accounts. 

• Get a business credit card for business purchases. Avoid commingling business and personal credit accounts.

Tips for Maintaining Your LLC’s Good Credit

Maintaining good credit for your LLC is crucial for your long-term financial health and success. Here are some important LLC credit building strategies to consider.

1. Pay bills on time

Paying your bills on time is one of the best ways to maintain good credit. Make sure you pay things like vendor invoices, loans, credit card balances, and utility bills by their due dates. Late payments can negatively impact your credit score and may result in penalties or higher interest rates.

2. Monitor credit reports

Regularly monitor your LLC’s credit reports from major business credit bureaus. Check for any errors, inaccuracies, or fraudulent activities. Address any discrepancies immediately by reporting them to the credit bureaus.

3. Keep your credit utilization low

Your credit utilization ratio, also called your debt utilization ratio, compares the amount of credit you’re using to the total credit available to you. Try to keep yours below 30% to demonstrate responsible credit management. High credit utilization can negatively impact your credit score and may make lenders see your business as a higher risk.

4. Communicate with creditors

If you run into financial difficulties or see challenges in making payments, it’s important to talk to your creditors. Establishing open lines of communication and discussing alternative payment arrangements can help you avoid negative consequences like delinquency or default. Many creditors are willing to work with businesses facing temporary setbacks.

5. Regularly review financial statements

Keep a close eye on your LLC’s financial statements, including income statements, balance sheets, and cash flow statements. Regularly reviewing these statements helps you identify any areas that require attention and allows you to make better financial decisions that won’t impact your credit score.

6. Update information with credit bureaus

Keep your LLC’s information updated with the credit bureaus. Notify them of any changes in your business’s address, contact information, ownership, or legal structure. Accurate and up-to-date information ensures that your credit profile reflects the most current and accurate details.

By following these tips, you can help maintain your LLC’s good credit standing, which will help you to unlock business loans and other funding options, establish strong vendor relationships, and position your business for long-term success. Check out this Nav guide for other easy ways to build business credit for an LLC. 

Common Credit Building Mistakes to Avoid

When building credit for your LLC, it’s important to avoid common mistakes that could hinder your progress or negatively impact your creditworthiness. Here are some common credit building mistakes:

• Late payments: Consistently making late payments or missing payments altogether is one of the most damaging mistakes you can make. Late payments can significantly lower your credit score.
• Applying for too much credit: Applying for multiple credit accounts within a short period can raise red flags with creditors and credit bureaus. Each time you apply for credit, it triggers a hard inquiry on your credit report, which can temporarily lower your credit score.
• Neglecting personal credit: If you’re a sole proprietor or the primary owner of the LLC, your personal credit can impact your business’s creditworthiness, especially in the early stages. Neglecting your personal credit can limit your access to favorable financing options for the business. 
• Failing to monitor credit reports: It’s necessary to identify errors, discrepancies, or fraudulent activities on your credit report. Inaccurate information can damage your credit. 
• Closing old credit accounts: The number of years you have had access to credit impacts your credit score. So even if you’re not actively using certain credit accounts, keeping them open and occasionally making small purchases can help demonstrate a longer credit history and responsible credit management.
• Not establishing vendor relationships: Building credit solely through credit cards or loans can limit the variety of credit types on your business’s credit profile. Using net-30 vendors that report can help with this.

By avoiding these common credit building mistakes, you can help establish and maintain a solid credit profile for your LLC and improve your ability to get business funding.

Best Business Credit Card to Build Credit for a New LLC

Not all business credit cards report to credit bureaus (and not all report to all three of the major credit bureaus). Check out Nav’s breakdown for the business credit cards that do report to the business credit bureaus. Here are a few of the top small business credit cards that report to credit bureaus.

Capital on Tap Business Credit Card

Capital One Spark Classic for Business

Nav Prime Card

Getting Financing for Your LLC

One of the biggest benefits of establishing credit for your LLC is the ability to get access to more financing options. Some lenders simply won’t lend to sole proprietorships; your business must be its own legal entity. 

At the same time, if you apply for financing for your business, you may be asked to provide your name and social security number or tax ID if you’re the authorized individual on the account. Some lenders will check personal credit simply to avoid red flags (such as serious delinquencies) while others will require good personal credit scores. 

Nav helps you find the right funding for your small business. You’ll see funding options based on your business data, allowing you to see what you can qualify for before you apply.

FAQs

What Is the Fastest Way To Get Business Credit for an LLC?

The fastest way to establish business credit for an LLC is to take the following steps:

1. Make sure you get an employer identification number (EIN) from the IRS for your LLC, ensuring it’s separate from your personal social security number.
2. Open a business bank account in the LLC’s name and use it exclusively for business transactions.
3. Make sure your LLC is registered with business credit bureaus.
4. Start establishing credit by applying for a business credit card or securing trade credit with suppliers who report to business credit bureaus. Pay all bills and credit obligations on time and consistently.
5. Maintain a positive payment history, avoid maxing out credit limits, and gradually apply for additional credit as needed.

Over time, your LLC can build a strong business credit profile, which will help you access better financing options and business opportunities.

Does My LLC Get a Credit Score?

Yes, your LLC can have a credit score, often referred to as a business credit score or a business credit rating. Business credit scores are separate from personal credit scores and are specific to the financial activity of the LLC. These scores are typically maintained by business credit bureaus. 

The credit score for your LLC is based on its credit history, payment history, and financial behavior, including how it manages its debts and financial obligations. It’s important to establish and maintain a positive credit history for your LLC, as a good business credit score can help you secure financing, negotiate better terms with suppliers, and more.

Do I Need To Report to Business Credit Bureaus Myself for My LLC?

As the owner of an LLC, you don’t necessarily need to report your business’s activities directly to major business credit bureaus. These bureaus typically collect information from various sources, such as creditors, vendors, and public records, to compile business credit reports. However, it’s crucial to ensure that your business’s financial transactions and credit history are accurately reported by your creditors and vendors. Establishing and maintaining positive credit relationships with suppliers, lenders, and creditors who report your payment history can help build and improve your LLC’s business credit profile over time. Additionally, you can proactively request your business credit reports from these bureaus to verify the accuracy of the information and address any discrepancies.

How Can I Check My Business’s Current Credit Score?

The easiest way to check your business’s current credit score is to sign up for Nav Prime. It’s the only way to access Detailed Credit Reports from each of the major business credit bureaus in one place. Nav Prime sends you notifications to help you regularly monitor your business credit, which is essential for maintaining financial health and making informed financial decisions.

How Many Inquiries Can I Make Before It Hurts My Business Credit?

The exact number of hard credit checks that can negatively impact your business credit can vary depending on the credit bureau and the specific scoring model used, but generally, multiple credit inquiries within a short time frame can hurt your business credit. These inquiries, also known as hard inquiries, typically remain on your credit report for up to two years. While one or two inquiries may not have a significant impact, a sudden influx of inquiries from various creditors can signal financial instability and may lower your business credit score. To minimize the potential damage, try to limit credit inquiries and loan applications to those that are necessary, and space them out over time.

How Does My Personal Credit Factor Into Business Credit, if at All?

While your business credit and personal credit are kept separate by the credit bureaus, they may both affect your business and your ability to get business financing. 

Many business credit card issuers and lenders consider your personal credit history when evaluating your eligibility for business credit products because they may require a personal guarantee. This means that if your business doesn’t meet its financial obligations, you’re personally liable. However, as your business grows and establishes its own credit history, the emphasis on your personal credit may decrease.

The FICO SBSS score can use data from both your personal and business credit reports to create a business credit score, and some versions of other scores may offer this feature to lenders. 

*DISCLAIMER: Nav Technologies, Inc. is a financial technology company and not a bank. Banking services provided by Blue Ridge Bank, N.A., and Thread Bank, Members FDIC. The Nav Visa® Business Debit Card is issued by Blue Ridge Bank, N.A. or Thread Bank, and the Nav Prime Charge Card is issued by Thread Bank pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa cards are accepted. FDIC insurance is available for your funds on deposit, up to $250,000 through Blue Ridge Bank, N.A. or Thread Bank, Members FDIC. See Cardholder Terms for additional details.