Published By Janet Gershen-Siegel at December 23rd, 2018
So, your best business credit – do you know how to build it effectively? Do you know how to win at the business credit game?
Do you know the best order in which to build business credit, to avoid being turned down and bypass delays? We do.
Building small business credit means that your company gets chances you never knew you would. You can get new equipment, bid on realty, and deal with the company payroll. And this is even when times are a bit lean.
This is especially helpful in seasonal companies, where you can go for several months with only negligible sales.
Because of this, you should focus on developing your company credit. Boost and maintain your scores and you will have these possibilities.
Do not, and either you do not get these business opportunities, or they will cost you a lot more. And no company owner wants that. You need to recognize what affects your company credit before you can make it better.
This is in a nutshell how long your business has been using business credit. Naturally newer firms will have short credit histories. While there is not a lot you can particularly do about that, do not worry.
Credit reporting agencies will also investigate your personal credit score and your very own background of payments. If your consumer credit is good, then your individual credit can come to the rescue of your corporate. So this is particularly if you have a somewhat extensive credit history.
Obviously the converse is also right. If your private credit history is poor, then it will impact your business credit scores. And it will do so until your small business and individual credit can be split up.
Overdue payments will impact your small business credit score for a good seven years! Make sure to pay your company debts off, as quickly as possible and as completely as possible. So then you can make a very real difference when it involves your credit scores.
Make sure to pay without delay and you will reap the benefits of promptness.
Are you having a dissatisfactory business year? Then it could land on your individual credit score. And just in case your company has not been in existence for too long, it will directly influence your corporate credit.
Fortunately, you can unlink them both by taking steps to uncouple them.
Say, if you get credit cards just for your firm, or you open business checking accounts and various other bank accounts, then the credit reporting agencies will start to treat your personal and small business credit on an individual basis.
Also, make sure to incorporate, or at the very least file a DBA.
You can also pay for your company’s expenses with your small business credit card or checking account. Also, make sure it is the business’s full name on the bill and not your own.
Credit utilization rate is the amount on credit. So it is then divided by total available credit. Lenders, generally speaking, do not want to see this go above 30%.
So for each $100 in credit, do not borrow on in excess of $30 of that. If this percentage is climbing, you’ll need to spend down and pay off your debts before borrowing more.
Just like every entity out there, credit reporting bureaus such as Equifax and Experian are only as good as their files.
If your business’s name is like another’s, or your name is a lot like another company owner’s, there could be some oversights.
So monitor those reports, and your small business report at Dun & Bradstreet, PAYDEX. Stay on top of these reports. And dispute charges with paperwork and transparent communications. Do not just let them stay wrong! You can repair this!
And while you’re at it, monitor the credit reporting agency which only handles personal and not small business credit, TransUnion.
If you do not know how to pull a credit report, do not worry. It is easy. Just use Google to find the links to the CRAs.
Business credit is credit in a business’s name. It doesn’t tie to a business owner’s individual credit, not even if the owner is a sole proprietor and the only employee of the business. As a result, a business owner’s business and consumer credit scores can be very different.
Since corporate credit is distinct from consumer, it helps to safeguard a small business owner’s personal assets, in the event of legal action or business insolvency. Also, with two distinct credit scores, a small business owner can get two separate cards from the same vendor. This effectively doubles buying power.
Another benefit is that even startup ventures can do this. Visiting a bank for a business loan can be a recipe for disappointment. But building corporate credit, when done the right way, is a plan for success.
Individual credit scores depend upon payments but also other considerations like credit usage percentages. But for company credit, the scores truly just depend on if a small business pays its bills in a timely manner.
Establishing small business credit is a process, and it does not occur without effort. A business has to proactively work to build corporate credit. However, it can be done readily and quickly, and it is much speedier than establishing consumer credit scores.
Merchants are a big part of this process.
Doing the steps out of order will lead to repetitive denials. No one can start at the top with business credit. For instance, you can’t start with store or cash credit from your bank. If you do you’ll get a rejection 100% of the time.
A company must be reliable to credit issuers and vendors. That is why, a company will need a professional-looking web site and email address, with website hosting bought from a vendor such as GoDaddy.
In addition business phone and fax numbers must have a listing on ListYourself.net.
Additionally the business telephone number should be toll-free (800 exchange or comparable).
A business will also need a bank account dedicated solely to it, and it must have all of the licenses essential for operating. These licenses all must be in the accurate, correct name of the company, with the same small business address and telephone numbers.
So keep in mind that this means not just state licenses, but possibly also city licenses.
Visit the IRS web site and obtain an EIN for the business. They’re free of charge. Pick a business entity like corporation, LLC, etc.
A small business can begin as a sole proprietor. But they will probably want to switch to a type of corporation or partnership to decrease risk and maximize tax benefits.
A business entity will matter when it comes to taxes and liability in the event of a lawsuit. A sole proprietorship means the entrepreneur is it when it comes to liability and taxes. Nobody else is responsible.
If you run a small business as a sole proprietor, then at least be sure to file for a DBA (‘doing business as’) status.
If you do not, then your personal name is the same as the company name. As a result, you can wind up being directly responsible for all business debts.
Plus, according to the Internal Revenue Service, by having this structure there is a 1 in 7 chance of an IRS audit. There is a 1 in 50 probability for corporations! Steer clear of confusion and substantially lower the chances of an Internal Revenue Service audit as well.
Begin at the D&B web site and obtain a cost-free DUNS number. A DUNS number is how D&B gets a corporation into 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 small business. 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.
In this manner, Experian and Equifax will have activity to report on.
Start with the vendor credit tier. First you ought to build trade lines that report. This is also called vendor accounts. 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 getting store and cash credit.
These kinds of accounts have the tendency to be for the things bought all the time, like marketing materials, shipping boxes, outdoor work wear, ink and toner, and office furniture.
But to start with, what is trade credit? These trade lines are credit issuers who will give you initial credit when you have none now. Terms are usually Net 30, rather than revolving.
Therefore, if you get approval for $1,000 in vendor credit and use all of it, you will need to pay that money back in a set term, such as within 30 days on a Net 30 account.
Net 30 accounts must be paid in full within 30 days. 60 accounts need to be paid fully within 60 days. Compared to with revolving accounts, you have a set time when you have to pay back what you borrowed or the credit you made use of.
To begin your business credit profile properly, you should get approval for vendor accounts that report to the business credit reporting agencies. Once that’s done, you can then make use of the credit.
Then repay what you used, and the account is on report to Dun & Bradstreet, Experian, or Equifax.
Not every vendor can help in the same way true starter credit can. These are vendors that will grant an approval with negligible effort. You also need them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.
But you may have to apply more than one time to these vendors, and you may have to purchase some things you don’t need, to verify you are responsible and will pay punctually. Consider donating unwanted things to charity.
Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs move to the retail credit tier. These are businesses such as Office Depot and Staples. These companies are more likely to have products you need.
Use the corporation’s EIN on these credit applications.
One example is Lowe’s. They report to D&B, Equifax and Business Experian. They need to see a DUNS and a PAYDEX score of 78 or better.
Are there 8 to 10 accounts reporting? Then move onto the fleet credit tier. These are companies such as BP and Conoco. Use this credit to buy fuel, and repair and take care of vehicles. Make sure to apply using the business’s EIN.
Have you been responsibly handling the credit you’ve gotten up to this point? Then move onto the cash credit tier. These are businesses like Visa and MasterCard. Your Social Security Number and date of birth are necessary for verification purposes only. Don’t use them for credit checks or guarantees. Instead, use your EIN.
These are companies like Walmart and Dell, and also Home Depot, BP, and Racetrac. These are typically MasterCard credit cards. If you have 14 trade accounts reporting, then these are doable.
Know what is happening with your credit. Make certain it is being reported and take care of any errors ASAP. Get in the habit of checking credit reports and digging into the details, and not just the scores.
We can help you monitor business credit at Experian and D&B for 90% less than it would cost you at the CRAs. See: https://www.creditsuite.com/monitoring. At D&B you can monitor at: https://www.dandb.com/credit-builder/. Update the information if there are errors or the data is incomplete.
So, what’s all this monitoring for? It’s to fix business credit mistakes in your records. Errors in your credit report(s) can be corrected. But the CRAs typically want you to dispute in a particular way.
Disputing credit report inaccuracies generally means you mail a paper letter with copies of any proofs of payment with it. These are documents like receipts and cancelled checks. Never send the original copies. Always send copies and keep the originals.
Disputing credit report inaccuracies 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.
Always use credit smartly! Never borrow beyond what you can pay back. Track balances and deadlines for payments. Paying off promptly and completely will do more to elevate business credit scores than just about anything else.
Establishing corporate credit pays. Excellent business credit scores help a corporation get loans. Your credit issuer knows the small business can pay its financial obligations. They know the company is bona fide.
The small business’s EIN connects to high scores, and lending institutions won’t feel the need to demand a personal guarantee.
Business credit is an asset which can help your corporation for years to come. Learn more here and get started toward building company credit.
Once you understand what influences your company credit scores, you are that much nearer to knowing how to build it effectively.