I have spent most of my adult years researching and writing about personal credit. But when it comes to business credit, I can’t call it my comfort zone. 

However, many have asked me to please write about how to build business credit. So I spent many hours researching it (my style), and in the next few weeks, I will post the results of my research on HelpMeBuildCredit.

Just keep in mind that research is only research. It does not compare to personal credit where I have a ton of hands-on experience. I hope all information in this guide is accurate. I did my best to try to research it and ask the industry experts. But if you feel anything in this guide is not accurate then feel free to leave a comment and I will review it and respond. 

Before we get started - read this!

Most people who ask me about how to build business credit are people who have either damaged their personal credit or never have worked on building it. Many of them do not even have legit businesses, they just think that somehow, they can build business credit to substitute personal credit and thus get approved for business loans, etc.

That is not something that’s really possible. And that is not what the guide will target. 

The goal of building business credit is not to substitute personal credit. The goal of business credit is to have it on top of personal credit. With the combination of personal credit and business credit, you can get even better loans, etc. (some loans will not approve you if you only have personal credit – they will require you to also have business credit).

If one has a very large business that has millions of dollars in sales, then it might be possible for them to get approved for a loan only on business credit (Jeff Bezos doesn’t need to give his personal credit to get a loan for Amazon).

But all others like you will unfortunately also need personal credit. This guide will teach you how to build business credit – but don’t forget to also build personal credit!  

Business credit bureaus

Just like there are three personal credit bureaus (Experian, Transunion, and Equifax), there are also multiple business credit bureaus: 

• Dun & Bradstreet (D&B)
• Experian Business
• Equifax Business

Each credit bureau collects information independently. They will collect information about your business based on banks or different loan types that report to them. Therefore, your score can be different by different credit bureaus, or you might even not have a score at all at one of the business credit bureaus.

For the rest of this guide we will focus mostly on Dun & Bradstreet (D&B), as they are the biggest and most commonly used business credit bureau.

Paydex score

With personal credit, you have a Fico score. With business credit, the most important score to look at is your Paydex score.

The Paydex score is a score generated by Dun & Bradstreet (D&B). The score ranges from 0-100, the higher score the better. 

Here are the most important factors they look at.

The basics of business credit

The most important factors for business credit are:

• On-time and early payments to business loans and vendors 

• Number of reporting tradelines

• Years in business

• Outstanding debts 

• Public records, such as bankruptcies, liens, and judgments 

• Company size  

• General industry risk

Let’s break down each one separately and talk about how you can build each factor to its best.

On-time payments 

The most important factor in your Paydex score is on-time payments. All loans need to be paid on time and net 30 vendors etc., need to be paid on time. 

Pay not only on time but pay early: Different from personal credit, with business credit, not only do you need to pay on time but  the earlier you pay the better. For example, for a net 30 invoice if you pay it the day you receive it, your Paydex score will be higher than if you pay it the 30th day. Even if the 29th day is still not late, Paydex likes to see you pay your bills early rather than waiting for the last day.

In order to generate a Paydex score higher than 80, you need to not only pay your bills on time, you need to pay them early. 

Higher invoices should be paid first: Another important thing to know is the higher the amount you owe and pay, the more of an impact it has on your Paydex score. So higher invoices should always be paid first. 

Number of reporting tradelines

In order to generate a solid Paydex score you need to have a minimum of 3-4 active reporting tradelines.

In the coming posts I will expand more on how you can get reporting tradelines. 

Years in business

The longer your company is in business the better your score is. Unfortunately, new businesses are fighting a statistic that 90% of them fail. The longer your business is open the more stability it shows. If you’re open for 20 years and were never late on any payment then, wow, that is a solid business and you deserve a solid Paydex score.

Outstanding debts

This one is exactly the way it sounds. The more debt you owe the lower your Paydex score will be.

Public records, such as bankruptcies, liens, and judgments 

This is no good for personal credit and neither is it good for business credit! 

Company size  

A small backyard business can expect to score lower than a large business with many employees. 

General industry risk

The industry you are operating in can have a significant effect on your Paydex score. If your business is operating in a high-risk category then your Paydex score will be lower due to that.

Next week I hope to continue with more information on how to build business credit. Stay tuned!