Business Tradelines and How they Affect Your Credit Score | Nav (2024)

If you’re an entrepreneur trying to establish business credit, you’ve probably heard terms like “tradelines, trade credit, corporate tradelines, or vendor accounts.” You may even know they are important, but aren’t sure how to get them and how they can benefit your business. Here we’ll demystify them.

What Is a Business Tradeline?

A business tradeline is a credit account between a business and vendor. Typically, a supplier or vendor will offer the business payment terms such as net-30, which means the business can pay for purchases in 30 days, rather than upfront. Net-30 accounts can improve the cash flow of the business since goods or services don’t have to be paid for upfront.

What You Should Know About Business Tradelines

Business tradelines can be a valuable tool when it comes to preparing your business for financing. In a nutshell:

How Do I Get a Tradeline for My Business?

Establishing business credit is often a confusing process because not all lenders and vendors report to all major business credit reporting agencies. For example, information about a supplier account may appear on your Experian credit report, while information about business credit cards is often shared with lenders via the Small Business Financial Exchange (SBFE).

One great way to establish tradelines is to simply ask. Ask your suppliers or vendors if they offer credit or payment terms. There may be a basic credit check involved, but most don’t require good credit and will rarely check a FICO score.

If you aren’t yet doing business with suppliers or vendors that report to commercial credit bureaus, you can seek out vendors that report. Purchase items your business needs (such as office supplies) then pay on time.

Nav Prime gives you up to two actively reporting tradelines — one from your monthly Nav Prime payment and another from regular use of the Nav Prime Card.* These tradelines are sent to the major business credit bureaus, which builds business credit history.

How Many Tradelines Should a Business Have?

Payment history helps lenders understand how borrowers have handled credit in the past. A business credit report that lacks tradelines or other credit references makes it difficult for lenders to assess the creditworthiness of the business and how it is likely to pay in the future.

There is no perfect number of tradelines, but if your goal is to build business credit, you will probably want to make sure your business credit report lists at least two to three accounts reporting to business credit bureaus. The PAYDEX score produced by Dun & Bradstreet, for example, requires two tradelines with at least three “credit experiences” to calculate a score. A credit experience is when credit is extended and paid off. You don’t have to use those accounts each month, but keeping them active by making purchases (and paying on time) can be helpful for establishing good business credit.

Is One Business Tradeline Enough?

Having just one business tradeline may be enough in certain situations, particularly if your business is new or if you’re managing a very small operation with minimal credit needs. If the single tradeline is in good standing and reflects positively on your credit history, it can still provide a foundation for future credit opportunities. However, relying solely on one tradeline could limit your ability to demonstrate a diverse credit history, potentially affecting your ability to secure larger loans or credit lines in the future.

On the other hand, having multiple business tradelines can offer several advantages:

1. It demonstrates to lenders that your business has a history of managing credit responsibly and can handle various types of financial obligations.
2. This diversity in credit sources can also help mitigate risks associated with relying on a single creditor.
3. Having multiple tradelines may improve your business credit score over time, potentially leading to better terms and opportunities for financing as your business grows.

Ultimately, the decision to have one or multiple business tradelines depends on your business’s financial strategy and credit needs.

Some types of business financing also report to business credit; many business loans, business lines of credit, business credit cards and other types of financing can help establish a business credit profile.

How to Maintain Tradeline Activity

Maintaining tradeline activity involves actively managing your credit accounts to ensure they remain in good standing and continue positively impacting your credit profile.

Here are some steps to maintain tradeline activity effectively:

1. Make timely payments: Make sure that your payments are on time for all your credit accounts, including loans, credit cards, and lines of credit. Late payments can have a significant negative impact on your credit score and the health of your tradelines.
2. Keep balances low: Aim to keep your credit card balances low relative to your credit limits. High credit utilization can signal financial stress to creditors and may negatively affect your credit score. Strive to pay off balances in full each month if possible.
3. Manage credit reports: You might be surprised how often your credit reports contain wrong information. Regularly review your credit reports from all three major business credit bureaus to check for any errors or inaccuracies. Dispute any discrepancies promptly to ensure your credit information is accurate.
4. Use credit wisely: Avoid opening unnecessary credit accounts or applying for multiple lines of credit within a short period, as this can indicate financial instability to creditors. Be strategic about applying for new credit and only take on debt that you can manage responsibly.
5. Maintain account activity: Even if you’re not actively using a credit account, consider making small purchases periodically to keep the account active and prevent it from being closed due to inactivity. Closing accounts can reduce your available credit and potentially harm your credit score.
6. Communicate with creditors: If you’re facing financial difficulties that may affect your ability to make payments, communicate with your creditors proactively. Many creditors offer assistance programs or flexible payment options that can help you avoid negative consequences such as late fees or credit score damage.

By following these practices, you can effectively maintain tradeline activity and ensure that your credit accounts continue to positively contribute to your overall creditworthiness.

Are Business Tradelines Legal?

Absolutely. But there are some questionable practices associated with something called “seasoned tradelines.” Some companies (including some credit repair firms) offer to sell seasoned tradelines to help business owners establish credit quickly.

Here’s how it works:

A company will establish a corporation and open accounts under that corporate name, with the goal of “flipping” it. It will then sell this “shelf corporation” to another business with the promise that it will immediately have access to thousands of dollars in credit lines. But rarely does this turn out to be what it seems.

The established credit lines may not be the type of funding the new business needs, and if lenders catch whiff of the new business owner trying to take advantage of this scheme they can quickly shut those accounts down. “It’s usually shady,” says Nav’s Chairman of the Board, Levi King. While there may be legitimate reasons for buying a shelf corporation, using one to try to get access to funding your business otherwise would not qualify for is not likely to be one of them.

What’s Next?

Improving your business credit is a worthwhile goal. It can open up avenues to better financing for your business, help separate personal and business credit, and give potential lenders a reason not to focus on personal credit scores. Establishing positive tradelines is a crucial step in that process.

To do so, you’ll want to take the following steps:

1. Open a business credit card that will be reported to commercial credit agencies.
2. Establish accounts with lenders and/or vendors who will report to the business credit agencies.
3. Pay your accounts on time (early is even better) and you’ll be on your way to establishing a solid business credit rating.

*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.