Published By Janet Gershen-Siegel at February 19th, 2018
Do you know how to build business credit fast? We break down just what you need to know and show you what will work. Awesome!
Building business credit means that your small business obtains chances you never knew you would. You can get brand new equipment, bid on real estate, and deal with the company payroll. And you can do so even when times are a bit lean.
This is specifically helpful in seasonal companies, where you can go for several months with just low sales.
Given this, you ought to focus on growing your company credit. Improve and maintain your scores and you will have these opportunities. Do not, and either you do not get these business opportunities, or they will cost you a lot more.
And no business owner wants that. You should recognize what affects your small business credit before you can make it better.
This is in a nutshell the length of time your company has been making use of business credit. Needless to say newer small businesses will have short credit histories. Though there is not so much you can particularly do about that, do not stress.
Credit reporting bureaus will also scrutinize your personal credit score and your history of payments. If your individual credit is good, and especially if you have a reasonably extensive credit history, then your personal credit can come to the rescue of your company.
That is, you did not just get your first credit card a short time ago.
Naturally the opposite is also true. If your private credit history is bad, then it will have a bearing on your business credit scores.
And it will continue to until your small business and consumer credit can be split up.
Your credit utilization rate just shows the amount of cash you have on credit. So it is then divided by your total available credit. Lenders usually do not want to see this go above 30%.
So for every $100 in credit, do not borrow on more than $30 of that. If this percentage is rising, you’ll need to spend down. And pay your debts before borrowing more.
Late repayments will impact your company credit score for a good seven years. Make sure to pay your small business (and personal) financial obligations off, as fast as possible and as completely as possible. Do so and you can make a very real difference when it relates to your credit scores.
See to it to pay without delay and you will enjoy the rewards of punctuality.
A bad business year could wind up on your personal credit score. And just in case your small business has not been in existence for too long, it will directly affect your business credit. Fortunately, you can unlink them both by taking measures to do just that.
For example, get credit cards solely for your small business. Or open up business checking accounts and other bank accounts (and even get a business loan). Then the credit reporting agencies will start to address your personal and company credit on an individual basis.
Also, make certain to incorporate. Or at least file a DBA (doing business as) status. You can also pay for your company’s bills with your small business credit card or checking account. And ensure it is the company’s full name on the bill and not yours.
Just like every entity out there, credit reporting agencies like Equifax and Experian are only as good as their information. If your firm’s name is like another’s, or your name is a lot like another business owner’s, there can potentially be some errors.
So check those reports, and your business report at Dun & Bradstreet, PAYDEX. Remain on top of these reports and dispute charges with records and clear-cut communications. Do not just let them stay incorrect! You can fix this!
And while you’re at, it you should also be monitoring the credit reporting agency which just handles individual and not company credit, TransUnion. If you do not know how to pull a credit report, do not stress. It’s simple.
Business credit is credit in a small business’s name. It doesn’t tie to a business owner’s consumer credit, not even if the owner is a sole proprietor and the sole employee of the small business.
As a result, a business owner’s business and personal credit scores can be very different.
Considering that business credit is separate from personal, it helps to safeguard an entrepreneur’s personal assets, in case of a lawsuit or business insolvency.
Also, with two distinct credit scores, a business owner can get two different cards from the same vendor. This effectively doubles purchasing power.
Another advantage is that even startup companies can do this. Going to a bank for a business loan can be a formula for frustration. But building small business credit, when done the right way, is a plan for success.
Individual credit scores rely on payments but also various other considerations like credit utilization percentages.
But for business credit, the scores truly only hinge on whether a company pays its invoices promptly.
Growing business credit is a process, and it does not occur automatically. A business will need to actively work to establish small business credit.
Nonetheless, it can be done easily and quickly, and it is much swifter than establishing individual credit scores.
Merchants are a big component of this process.
Performing the steps out of order will cause repetitive rejections. Nobody can start at the top with company credit. For example, you can’t start with store or cash credit from your bank. If you do you’ll get a denial 100% of the time.
A business must be reliable to lending institutions and vendors.
That’s why a company will need a professional-looking website and e-mail address. And it needs to have website hosting bought from a company like GoDaddy.
Additionally company phone and fax numbers should have a listing on 411.com.
Likewise the business telephone number should be toll-free (800 exchange or comparable).
A small business will also need a bank account devoted solely to it, and it has to have all of the licenses essential for operating.
These licenses all must be in the perfect, appropriate name of the business. And they must have the same small business address and telephone numbers.
So bear in mind that this means not just state licenses, but possibly also city licenses.
Visit the Internal Revenue Service web site and acquire an EIN for the business. They’re totally free. Select a business entity like corporation, LLC, etc.
A small business can get started as a sole proprietor. But they will most likely want to switch to a kind of corporation or partnership.
This is in order to diminish risk. And it will optimize tax benefits.
A business entity will matter when it comes to tax obligations and liability in case of litigation. A sole proprietorship means the entrepreneur is it when it comes to liability and tax obligations. No one else is responsible.
If you operate a small business as a sole proprietor, then at the very least be sure to file for a DBA. This is ‘doing business as’ status.
If you do not, then your personal name is the same as the company name. Therefore, you can wind up being directly accountable for all small business debts.
Additionally, according to the IRS, with this arrangement there is a 1 in 7 possibility of an IRS audit. There is a 1 in 50 chance for corporations! Steer clear of confusion and drastically lower the chances of an IRS audit at the same time.
Start at the D&B web site and obtain a cost-free D-U-N-S number. A D-U-N-S number is how D&B gets a business in their system, to generate a PAYDEX score. If there is no D-U-N-S number, then there is no record and no PAYDEX score.
Once in D&B’s system, search Equifax and Experian’s web sites for the company. You can do this at 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.
This way, Experian and Equifax will have something to report on.
First you need to establish trade lines that report. This is also called the vendor credit tier. 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 start obtaining retail 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 credit issuers who will give you starter credit when you have none now. Terms are usually Net 30, versus 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 have to be paid completely within 60 days. Unlike with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you used.
To kick off your business credit profile the right way, you should get approval for vendor accounts that report to the business credit reporting bureaus. When that’s done, you can then use the credit.
Then pay back what you used, and the account is on report to Dun & Bradstreet, Experian, or Equifax.
Not every vendor can help like true starter credit can. These are merchants that will grant an approval with minimal 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 to 8 of these to move onto the next step, which is the retail credit tier. But you may need to apply more than one time to these vendors, and you may have to buy some items you don’t really need. So this is to demonstrate you are trustworthy and will pay timely.
Consider donating nonessential items to charitable organizations.
Uline Shipping Supplies is a true starter vendor. You can find them online at www.uline.com. They offer shipping, packing, and industrial supplies, and they report to D&B.
You need to have a D-U-N-S number. They will request 2 references and a bank reference. The initial few orders might have to be paid in advance to initially get approval for Net 30 terms. Also, you may have to buy some things you don’t need.
Quill is an additional true starter vendor. You can find them online at 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.
Typically they’ll put you on a 90 day prepayment schedule. If you order items every month for 3 months, they will normally approve you for a Net 30 Account.
Grainger Industrial Supply is likewise a true starter vendor. You can find them online at 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 D-U-N-S number.
For less than a $1000 credit limit they will approve nearly any person with a business license.
Non-Reporting Trade Accounts can also be helpful. While you do want trade accounts to report to at least one of the CRAs, a trade account which does not report can nevertheless be of some value.
You can always ask non-reporting accounts for trade references. And credit accounts of any sort ought to help you to better even out business expenses, thus making budgeting simpler. These are companies like PayPal Credit, T-Mobile, and Best Buy.
Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, then move to the retail credit tier. These are companies such as Office Depot and Staples. These companies are likelier to have products you need.
Use the business’s EIN on these credit applications.
One good example is Lowe’s. They report to D&B, Equifax and Business Experian. They want to see a D-U-N-S and a PAYDEX score of 78 or better.
Are there 8 to 10 accounts reporting? Then progress to the fleet credit tier. These are companies such as BP and Conoco. Use this credit to purchase, fix, and maintain vehicles. Make certain to apply using the small business’s EIN.
One such example is Shell. They report to D&B and Business Experian. They want to see a PAYDEX Score of 78 or higher and a 411 company phone listing.
Shell may say they want a certain amount of time in business or profits. But if you already have adequate vendor accounts, that won’t be necessary. And you can still get approval.
Have you been responsibly managing the credit you’ve up to this point? Then move onto the cash credit tier. These are companies like Visa and MasterCard. Keep your SSN off these applications; use your EIN instead.
One example is the Fuelman MasterCard. They report to D&B and Equifax Business. They need to see a PAYDEX Score of 78 or higher. And they also want you to have 10 trade lines reporting on your D&B report.
Plus they want to see a $10,000 high credit limit reporting on your D&B report (other account reporting).
Also they want you to have an established small business.
These are businesses such as 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 in reach.
Know what is happening with your credit. Make certain it is being reported and deal with any inaccuracies as soon as possible. Get in the habit of taking a look at credit reports and digging into the particulars, and not just the scores.
We can help you monitor business credit at Experian and D&B for only $24/month. See: www.creditsuite.com/business-credit-monitoring.
At D&B you can monitor at: www.dandb.com/credit-builder. At Experian, you can monitor your account at: www.smartbusinessreports.com/Landing/1217/. And at Equifax, you can monitor your account at: www.equifax.com/business/business-credit-monitor-small-business. Experian and Equifax cost about $19.99; D&B ranges from $49.99 to $99.99.
Update the details if there are inaccuracies or the details is incomplete. At D&B, you can do this at: https://iupdate.dnb.com/iUpdate/viewiUpdateHome.htm. For
Experian, go here: www.experian.com/small-business/business-credit-information.jsp. And for Equifax, go here: www.equifax.com/business/small-business.
So, what’s all this monitoring for? It’s to challenge any inaccuracies in your records. Mistakes in your credit report(s) can be taken care of. But the CRAs generally want you to dispute in a particular way.
Get your business’s PAYDEX report at: www.dnb.com/about-us/our-data.html. Get your company’s Experian report at: www.businesscreditfacts.com/pdp.aspx?pg=SearchForm. And get your Equifax business credit report at: www.equifax.com/business/credit-information.
Disputing credit report inaccuracies commonly means you send a paper letter with copies of any evidence of payment with it. These are documents like receipts and cancelled checks. Never send the original copies. Always send copies and keep the original copies.
Fixing credit report errors also means you precisely itemize any charges you dispute. Make your dispute letter as clear as possible. Be specific about the problems with your report. Use certified mail so that you will have proof that you sent in your dispute.
Dispute your or your business’s Equifax report by following the instructions here: www.equifax.com/small-business-faqs/#Dispute-FAQs.
You can dispute errors on your or your business’s Experian report by following the directions here: www.experian.com/small-business/business-credit-information.jsp.
And D&B’s PAYDEX Customer Service telephone number is here: www.dandb.com/glossary/paydex.
Always use credit smartly! Never borrow more than what you can pay off. Track balances and deadlines for repayments. Paying off promptly and fully will do more to increase business credit scores than just about anything else.
Building company credit pays. Great business credit scores help a company get loans. Your lender knows the small business can pay its debts. They understand the business is authentic.
The small business’s EIN links to high scores and lenders won’t feel the need to demand a personal guarantee.
Business credit is an asset which can help your business for many years to come.
Once you learn what influences your company credit scores, you are that much closer to building enhanced business credit. Learn more here and get started toward building business credit.