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Build Business Credit the Right Way from the Start

Published By Janet Gershen-Siegel at January 7th, 2018

You Should Build Business Credit the Right Way from the Start

When you build business credit, it means that your small business acquires opportunities you never considered you would, making it easier to succeed. Build business credit the right way from the start and eliminate obstacles to your success.

Every Company Needs to Build Business Credit the Right Way from the Start

Company credit is credit in a company’s name. It doesn’t tie to an entrepreneur’s consumer credit, not even when the owner is a sole proprietor and the solitary employee of the company.

Because of this, a business owner’s business and individual credit scores can be very different.

The Advantages

Given that small business credit is independent from consumer, it helps to secure a small business owner’s personal assets, in case of a lawsuit or business bankruptcy.

Also, with two distinct credit scores, a small business owner can get two different cards from the same vendor. This effectively doubles buying power.

Another benefit is that even startups can do this. Heading to a bank for a business loan can be a recipe for disappointment. But building company credit, when done right, is a plan for success.

Individual credit scores depend upon payments but also various other factors like credit utilization percentages.

But for small business credit, the scores truly merely depend on whether a small business pays its debts in a timely manner.

How to Build Business Credit the Right Way from the Start

Building business credit is a process, and it does not occur automatically. A small business has to actively work to establish business credit.

However, it can be done readily and quickly, and it is much quicker than building consumer credit scores.

Merchants are a big part of this process.

Carrying out the steps out of sequence will lead to repetitive rejections. Nobody can start at the top with business credit. For example, you can’t start with retail or cash credit from your bank. If you do, you’ll get a rejection 100% of the time.

Company Fundability

A company has to be fundable to loan providers and merchants.

That’s why, a business will need a professional-looking web site and e-mail address. And it needs to have website hosting from a merchant like GoDaddy.

And, company telephone and fax numbers must have a listing on 411.com.

Likewise, the business telephone number should be toll-free (800 exchange or the like).

A small business will also need a bank account dedicated strictly to it, and it needs to have every one of the licenses essential for running.

Licenses

These licenses all have to be in the perfect, appropriate name of the business. And they must have the same small business address and telephone numbers.

So note, that this means not just state licenses, but possibly also city licenses.

Build Business Credit the Right Way from the Start

Learn more here and build business credit the right way from the start.

Dealing with the IRS

Visit the IRS website and get an EIN for the small business. They’re free of charge. Select a business entity like corporation, LLC, etc.

A company can start off as a sole proprietor. But they will probably wish to switch to a kind of corporation or an LLC.

This is in order to limit risk. And it will optimize tax benefits.

A business entity will matter when it involves tax obligations and liability in the event of litigation. A sole proprietorship means the business owner is it when it comes to liability and tax obligations. Nobody else is responsible.

Sole Proprietors Take Note

If you run a company as a sole proprietor, then at 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 small business name. As a result, you can find yourself being personally accountable for all company debts.

Plus, according to the Internal Revenue Service, by having this arrangement there is a 1 in 7 probability of an IRS audit. There is a 1 in 50 chance for corporations! Steer clear of confusion and significantly reduce the odds of an IRS audit simultaneously.

Build Business Credit the Right Way from the Start and Kick Off the Reporting Process

Start at the D&B website and obtain a cost-free D-U-N-S number. A D-U-N-S number is how D&B gets a business into their system, to produce 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 sites for the small business. 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 activity to report on.

Vendor Credit Tier

First you ought to build trade lines that report. This is also referred to as 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 to obtain credit in the retail and cash credit tiers.

These types of accounts often tend to be for the things bought all the time, like marketing materials, shipping boxes, outdoor work wear, ink and toner, and office furniture.

But first off, what is trade credit? These trade lines are credit issuers who will give you initial credit when you have none now. Terms are often Net 30, rather than revolving.

So, if you get an 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.

Build Business Credit the Right Way from the Start

Learn more here and build business credit the right way from the start.

Details

Net 30 accounts need to be paid in full within 30 days. 60 accounts need to be paid completely within 60 days. Compared to with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you used.

To start your business credit profile the proper way, you ought to 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.

Vendor Credit Tier – It Makes Sense

Not every vendor can help in the same way true starter credit can. These are merchants that will grant an approval with marginal 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 have to apply more than one time to these vendors. So, this is to validate you are responsible and will pay on time.

Retail Credit Tier

Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, then progress to the retail credit tier. These are businesses such as Office Depot and Staples.

Only use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, use the business’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 D-U-N-S and a PAYDEX score of 78 or more.

Fleet Credit Tier

Are there 8 to 10 accounts reporting? Then progress to the fleet credit tier. These are businesses such as BP and Conoco. Use this credit to buy fuel, and to repair, and take care of vehicles. Just use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, make sure to apply using the 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 better and a 411 small business telephone listing.

Shell may say they want a certain amount of time in business or profits. But if you already have sufficient vendor accounts, that won’t be necessary. And you can still get approval.

Build Business Credit the Right Way from the Start

Learn more here and build business credit the right way from the start.

Cash Credit Tier

Have you been sensibly managing the credit you’ve up to this point? Then move onto the cash credit tier. These are businesses such as Visa and MasterCard. Only use your SSN and date of birth on these applications for verification purposes. For credit checks and guarantees, 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 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).

In addition, they want you to have an established small business.

These are businesses like Walmart and Dell, and also Home Depot, BP, and Racetrac. These are frequently MasterCard credit cards. If you have 14 trade accounts reporting, then these are in reach.

Monitor to Build Business Credit the Right Way from the Start

Know what is happening with your credit. Make certain it is being reported and fix any inaccuracies ASAP. 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 90% less than it would cost you at the CRAs. See: www.creditsuite.com/monitoring.

Update Your Records

Update the details if there are mistakes or the info is incomplete.

Fix Mistakes on Your Reports to Build Business Credit the Right Way from the Start

So, what’s all this monitoring for? It’s to contest any problems in your records. Mistakes in your credit report(s) can be corrected. But the CRAs usually want you to dispute in a particular way.

Disputes

Disputing credit report inaccuracies commonly means you mail a paper letter with duplicates of any proof of payment with it. These are documents like receipts and cancelled checks. Never send the originals. Always send copies and retain the originals.

Fixing credit report inaccuracies also means you specifically detail any charges you contest. Make your dispute letter as clear as possible. Be specific about the issues with your report. Use certified mail so that you will have proof that you sent in your dispute.

A Word about How to Build Business Credit the Right Way from the Start

Always use credit sensibly! Never borrow beyond what you can pay back. Track balances and deadlines for repayments. Paying promptly and completely will do more to boost business credit scores than almost anything else.

Establishing company credit pays. Excellent business credit scores help a small business get loans. Your credit issuer knows the company can pay its debts. They recognize the small business is bona fide.

The company’s EIN connects to high scores and credit issuers won’t feel the need to call for a personal guarantee.

Business credit is an asset which can help your company for years to come. Learn more here and get started toward growing small business credit.

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