How long does it take to build credit on an LLC?

Denise Elizabeth P
Senior Financial Editor & Contributor

Date Published: September 21, 2022

You can take advantage of many benefits when you establish your business as an LLC, and one of the big benefits is that you can get much better terms on loans by building credit for your business.

Whether it’s a line of credit or a credit card with lower interest, or more access to capital in general, better terms from other businesses, and more – there are a lot of advantages to growing your business credit when you have an LLC.

Here’s some of the basics that you need to know, along with some tips and advice on how you can go about growing your business credit as quickly as possible so that you can take advantage of it to grow your business.

How Long Does It Take To Build LLC Credit?

does your llc need a credit score

Some people will say it can take upwards of three years for an LLC to build credit, but the truth is that you can start making headway long before three years.

Having a longer history is better (and over time the score will take this into account) but what about when you’re just getting started?

It’s not something that happens overnight but you can start building that history by taking the correct steps today and over time you’ll see your business LLC credit score improve as more data becomes available.

There are certain things that you can’t really skip and time is one of them.

But time isn’t the only factor in a business credit score.

You may not unlock the full potential of a strong credit score in a short amount of time, and it may take years to fully realize the benefits, but you can still get started right now and lay the foundation for a great score later on.

In as little as under a year, you can start to observe the business credit score numbers (which range from 0-100 with the 3 main bureaus, or 0 to 300 with a special business-only FICA score).

Building Credit on an LLC Quickly

Take these steps as soon as possible to start establishing a financial history and track record for your business, and before you know it, you’ll have a good idea where the business stands in terms of its credit score. The longer you wait to get the ball rolling, the longer you’ll have to wait to notice improvements.

  • Incorporate the business
  • Open a dedicated bank account for the business
  • Apply for an EIN with the IRS
  • Get a D-U-N-S number from Dun & Bradstreet
  • Get a business line of credit/credit card
  • Make all of your payments on time
  • Establish trade lines with your vendors
  • Check your credit reports often to ensure everything is accurate.

Following these steps is what you need to do to establish your business’ credit score.

It does take some time, it’s not an overnight thing, but the journey of 1000 steps steps with one step, right?

Benefits of a Strong LLC Credit Score

There are numerous benefits to having a good credit score for your business, here’s a quick rundown of the main ones.

  • Protect your personal credit score and personal assets: This is a major benefit to having an LLC. In some cases, a person’s business will have even better credit than they do as an individual, so if you don’t have the best credit score – your business still can!
  • Better terms and relationships with suppliers: A supplier or vendor will see you more favorably if you pay on time, and they’ll be more likely to give you the benefit of the doubt when you have a strong credit score. The steps to build this score (paying on time) are the same things that suppliers and vendors love to see from you.
  • Better rates from lenders: Banks and other lenders will give you better interest rates and more favorable terms when your LLC has a great credit rating. This translates into much better cash flow and the ability to grow more quickly.
  • Better access to financing for the business: Some lenders will only loan to an LLC that has a solid credit score, so having one will open up more opportunities for financing, loans, and investments.

What Is LLC Credit?

An LLC’s credit is like a personal credit score except it’s for a business instead of for an individual.

Individuals have credit scores and credit ratings with the major credit bureaus. This rating helps lenders quickly identify if you’re generally responsible with debt or if you’re a higher risk to lend to. This helps them to determine if they can approve you for different types of loans and how high of an interest rate they would need to charge you to balance the risk.

There are some issues and flaws with this method, for instance somebody could have avoided using credit their entire life because they always save up to pay for things in cash and they end up being incredibly responsible with money, but this won’t reflect on their credit score.

On the other hand, if a lender sees that someone has a bunch of credit cards that are maxed, and they’re often late with payments, the lender knows this person is very high-risk.

Business credit, or in the case of an LLC credit scores, work similarly to personal credit ratings. A business can build up a reputation of paying their debts on time, not defaulting on loans, and maintaining a good ratio of credit compared to their income.

Why Does an LLC Have Its Own Credit Score?

An LLC is a separate legal entity.

There are instances where the owner of the LLC can still be held liable for things (it’s limited liability, not zero liability).

In terms of finances, the owner’s personal credit can play a role earlier on as the LLC is establishing itself financially, but after that, it’s useful for a business to have its own credit score.

The reason an LLC will have its own credit score is to keep track of its financial history, how the business has handled debt in the past, and to measure the risk in lending money to this LLC.

If LLC’s didn’t have their own score and were based entirely off of an individual, it could be possible for somebody to start an LLC, take out a bunch of loans, then fold the business into bankruptcy.

This is why lenders want to see a track record of a business or LLC before lending larger amounts of money.

Learn more about forming an LLC here.

Financing Options Are a Huge Benefit of Having an LLC

Business loans and financing are a different world compared to personal loans. To really simplify it, the reason credit cards have such high interest rates is because the money is being spent on consumer goods, experiences, and other things that aren’t being purchased to generate income.

On the other hand, when a business borrows money, it’s doing so with the goal of turning that money into even more money.

Rather than a business saving up money slowly and growing slowly, gaining access to capital can help get the wheels turning more quickly.

In some cases, business lenders won’t even lend to a sole proprietor, they’ll only give money to established businesses, so having an LLC can be critical in terms of access to capital to grow a company.

Also, your personal assets are protected in the event that an LLC goes bankrupt, is sued, or defaults on a loan.

Final Thoughts on How Long It Takes to Build Credit on an LLC

It does take some time to get things rolling, but it’s worth the effort.

The reason it takes time is because the business needs to demonstrate a consistent track record.

A big part of a business’ credit score is how they’ve handled money over a period of time, so get started today and enjoy the rewards in due time.

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  1. Ohio State University "8 Reasons Your Business Credit Score Matters" Page 1 . September 21, 2022