Published By Janet Gershen-Siegel at March 14th, 2018
These 3 factors can devastate your business credit scores. Do not let anything like this happen to you! These are easily preventable. Save your business credit scores!
Uh, oh. You tried to build a commercial credit score without truly thinking it through and taking into consideration what affects small business credit rating. Let’s take a look at 3 factors that can devastate your business credit scores. And how to fix them.
And you do have to fix them, because this is what affects a business credit rating.
Credit can be intoxicating. Take a look at all that free cash! Look at all the important things your company needs!
Wait; wait, whoa, time out!
It is not free cash. It’s a loan, really. All credit is whether it’s commercial or consumer. If you have gone on a wild credit spree, your credit rating is going to be affected. How? Delinquency.
When you are that much in hock, it may be tricky to stay on top of the payments. Late payments will directly and adversely impact your business credit score. So be responsible with credit. This isn’t gambling; it’s your livelihood and the livelihood of anyone who works for you.
While credit reports aren’t exactly page turners, you should still be staying on top of them.
Don’t have time to read through credit reports? Then use a monitoring service. Experian offers Business Credit Advantage. PAYDEX has Credit Reporter. And Equifax has Business Credit Monitor. If you prefer a free version for credit alerts, you can try CreditSignal.
The point of all of that monitoring is to spot errors and fix them. If any one of your credit reports has mistakes, then you must get on top of that, without delay. Disputing credit report errors generally means you send a paper letter with copies of any proofs of payment with it.
These are documents like receipts and cancelled checks.
Never send the originals. Always send copies and retain the originals. Precisely detail any charges you dispute. Make your dispute letter as crystal clear as possible. Use certified mail so that you will have proof that you sent in your dispute.
Contesting an error quickly means your credit reports will be corrected more quickly.
The longer and more intimately your personal and business finances are entangled, the more likely it is that credit reporting agencies will take your consumer credit into account when looking at your company.
This doesn’t give your company a chance to make its own credit ‘name’, as it were. When you examine your company credit score vs personal credit score, they should be different.
Paying off your business’s charges with personal charge cards or checks; not getting a separate IRS EIN number for your company; and not putting your business’s bills in the company’s name can all aggravate this problem.
And the Internal Revenue Service will probably have something to say about your business not having its own identification number.
So to repair this, your mission is as follows:
Factors that can devastate your business credit scores include not building business credit in the proper manner. So here’s how to do that. Corporate credit is credit in a small business’s name.
It isn’t attached to an owner’s individual credit, not even when the owner is a sole proprietor and the solitary employee of the business. Therefore, an entrepreneur’s business and individual credit scores can be very different.
Due to the fact that business credit is detached from consumer, it helps to safeguard an entrepreneur’s personal assets, in the event of a lawsuit or a business bankruptcy. Also, with two distinct credit scores, an entrepreneur can get two separate cards from the same merchant.
This effectively doubles buying power.
Another advantage is that even startup businesses can do this. Heading to a bank for a business loan can be a recipe for disappointment. But building small business credit, when done correctly, is a plan for success.
Personal credit scores rely on payments but also various other considerations like credit usage percentages. But for business credit, the scores actually just depend on whether a small business pays its bills in a timely manner.
Building Small Business Credit is a process, and it does not occur automatically. A business must proactively work to build corporate credit. Nonetheless, it can be done readily and quickly, and it is much quicker than establishing personal credit scores. Merchants are a big part of this process.
Undertaking the steps out of order will cause repeated rejections. Nobody can start at the top with corporate credit. For instance, you can’t start with store or cash credit from your bank. If you do you’ll be turned down 100% of the time.
A business needs to be legitimate to lenders and vendors. As a result, a corporation will need a professional-looking web site and e-mail address, with site hosting purchased from a supplier such as GoDaddy. Plus company telephone and fax numbers ought to be listed on 411. com. Also the company telephone number should be toll-free (800 exchange or comparable).
A corporation will also need a bank account dedicated purely to it, and it needs to have all of the licenses required for operating. These licenses all have to be in the precise, appropriate name of the corporation, with the same company address and telephone numbers.
Note that this means not just state licenses, but possibly also city licenses.
Visit the Internal Revenue Service web site and get an EIN for the small business– they’re free. Choose a business entity like corporation, LLC, etc.
A small business can start off as a sole proprietor but will probably want to switch to a kind of corporation or partnership to reduce risk and take full advantage of tax benefits.
And a business entity will matter when it comes to tax obligations and liability in case of a lawsuit. A sole proprietorship means the owner is it when it comes to liability and taxes. No one else is responsible.
If you operate a small business as a sole proprietor at least file for DBA (‘ doing business as’) status. If you do not, then your personal name is the same as the corporate name. Consequently, you can end up being personally liable for all company debts.
Also, per the IRS, by having this arrangement there is a 1 in 7 possibility of an IRS audit. There is a 1 in 50 probability for incorporated businesses! Avoid confusion and considerably lower the chances of an Internal Revenue Service audit at the same time.
Begin at the D&B web site and obtain a free DUNS number. A DUNS number is how D&B gets a small business in their system, to generate a PAYDEX score. If there is no DUNS number, then there is no record and no PAYDEX score.
Once in D&B’s system, search Equifax and Experian’s sites for the company. You can do this at https://www.creditsuite.com/reports/. If there is a record with them, check it for accuracy and completeness. If there are no records with them, go to the next step in the process.
By doing so Experian and Equifax will have activity to report on.
First you need to build trade lines that report. This is also known as vendor credit. Then you’ll have an established credit profile, and you’ll get a business credit score. And with an established business credit profile and score you can begin obtaining revolving store and cash credit.
These sorts of accounts tend to be for the things bought all the time, like coffee, shipping boxes, outdoor work wear, ink and toner, and office furniture.
But first of all, what is Trade Credit? These trade lines are creditors who will give you preliminary credit when you have none now. Terms are normally Net 30, as opposed to revolving.
Hence if you get approval for $1,000 in vendor credit and use all of it, you must pay that money back in a set term, such as within 30 days on a Net 30 account.
Net 30 accounts need to be paid in full within 30 days. 60 accounts have to be paid fully within 60 days. Unlike with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you utilized.
To kick off your business credit profile the proper way, you should get approval for vendor accounts that report to the business credit reporting bureaus.
As soon as that’s done, you can then make use of the credit, repay what you used, and the account is reported to Dun & Bradstreet, Experian, or Equifax.
Not every vendor can help in the same way true starter credit can. These are merchants that will grant an approval with nominal effort. You also want them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.
You want 5 – 8 of these to move onto the next step, which is revolving store credit. So you may have to apply more than once to these vendors, and you may have to purchase some items you do not need to have, to validate you are trustworthy and will pay on time.
Consider contributing nonessential things to charitable organizations.
Uline Shipping Supplies is a true starter vendor. Find them online at https://www.uline.com/. They sell shipping, packing, and industrial supplies, and they report to D&B.
You must have a DUNS number. They will request 2 references and a bank reference. The initial few orders may need to be prepaid to initially get approval for Net 30 terms. You may have to buy some items you do not need.
Quill Office Supplies is an additional true starter vendor. Find them online at https://www.quill.com/. They sell office, packaging, and cleaning supplies, and they report to D&B and Experian.
Since Quill reports to two separate credit reporting agencies, you get two credit experiences with them. Place an initial order first unless the D&B score is developed. Normally they’ll put you on a 90 day prepayment schedule.
If you order items each month for 3 months, they will commonly approve you for a Net 30 Account.
Grainger Industrial Supply is also a true starter vendor. Find them online at https://www.grainger.com/.
They sell safety equipment, plumbing supplies, and more, and they report to D&B. You will need to have a business license, EIN, and a DUNS number. For less than $1000 credit limit they will approve virtually any person with a business license.
Non-Reporting Trade Accounts can also be helpful. While you do want trade accounts to report to at the very least one of the CRAs, a trade account which does not report can nevertheless be of some worth.
You can always ask non-reporting accounts for trade references. And also credit accounts of any sort will help you to better even out business expenses, thereby making financial planning less complicated. These are providers like PayPal Credit, T-Mobile, and Best Buy.
Once there are 5– 8 or more vendor trade accounts reporting to at least one of the CRAs, move onto revolving store credit. These are companies like Office Depot and Staples. These companies are more likely to have items you need.
Use the corporation’s EIN on these credit applications.
One such instance is Lowe’s. They report to D&B, Equifax and Business Experian. They want to see a DUNS and a PAYDEX score of 78 or better.
Are there 8 – 10 accounts reporting? Then move onto fleet credit. These are businesses such as BP and Conoco. Use this credit to buy, repair, and maintain vehicles. Make sure to apply using the small business’s EIN.
One such example is Shell. They report to D&B and Business Experian. They need to see a PAYDEX Score of 78 or more and a 411 corporate phone listing. Or they might say they want a certain amount of time in business or profits.
But if you already have adequate trade lines, that won’t be needed and you can still get an approval.
Have you been sensibly managing the credit you’ve up to this point? Then move to cash credit. These are businesses such as Visa and MasterCard. Keep your SSN off these applications; use your EIN instead.
One such example is the Fuelman MasterCard. They report to D&B and Equifax Business. They want to see a PAYDEX Score of 78 or better; 10 trade lines reporting on your D&B report; and a $10,000 high credit limit reporting on D&B report (other account reporting).
Additionally they want you to have an established corporation.
These are service providers such as Walmart and Dell, and also Home Depot, BP, and Racetrac. These are commonly MasterCard credit cards. If you have 14 trade accounts reporting, then these are attainable.
Know what is happening with your credit. Make certain it is being reported and take care of any mistakes as soon as possible. Get in the practice of checking credit reports and digging into the specifics, and not just the scores.
We can help you monitor business credit at Experian and D&B for only $24/month. See: https://www.creditsuite.com/business-credit-monitoring.
At Equifax, you can monitor your account at: http://www.equifax.com/business/business-credit-monitor-small-business. Experian and Equifax are $19.99; D&B ranges from $49.99 to $99.99.
Update the info if there are inaccuracies or the information is incomplete. At D&B, you can do this at: https://iupdate.dnb.com/iUpdate/viewiUpdateHome.htm.
For Experian, go here: http://www.experian.com/small-business/business-credit-information.jsp.
What’s all this monitoring for? It’s to contest any mistakes in your records. Errors in your credit report( s) can be taken care of. But the CRAs often want you to dispute in a particular way.
Get your small business’s PAYDEX report at: http://www.dnb.com/about-us/our-data.html.
You can get your company’s Experian report at: http://www.businesscreditfacts.com/pdp.aspx?pg=SearchForm.
And get your Equifax business credit report at: http://www.equifax.com/business/credit-information.
Disputing credit report mistakes normally means you mail a paper letter with copies of any evidence of payment with it. These are documents like receipts and cancelled checks. Never mail the original copies. Always mail copies and keep the originals.
Disputing credit report mistakes also means you precisely detail any charges you contest. Make your dispute letter as crystal clear as possible. Be specific about the concerns with your report. Use certified mail so that you will have proof that you mailed in your dispute.
Also, dispute your or your corporation’s Equifax report by following the instructions here: http://www.equifax.com/small-business-faqs/#Dispute-FAQs.
Dispute inaccuracies on your or your small business’s Experian report by following the directions here: http://www.experian.com/small-business/business-credit-information.jsp.
And D&B’s PAYDEX Customer Service contact number is here: https://www.dandb.com/glossary/paydex/.
Also, always use credit responsibly! Don’t borrow more than what you can pay off. Track balances and deadlines for payments. Paying punctually and fully will do more to increase business credit scores than virtually anything else.
Building corporate credit pays. Good business credit scores help a corporation get loans. Your lending institution knows the corporation can pay its financial obligations. They know the company is for real.
The corporation’s EIN links to high scores, and creditors won’t feel the need to ask for a personal guarantee.
Save your business credit scores! Learn more here and get started toward getting rid of these factors that can devastate your business credit scores.