Published By Janet Gershen-Siegel at July 17, 2018
Written by Janet Gershen-Siegel
Do you know the 8 steps to build business credit with your EIN not linked to your personal credit? You don’t have to empty your wallet in order to build business credit.
Assure potential credits that your business is credible by taking some steps to assure them that your venture is a true business and not just a hobby. This means registering your business with your local Secretary of State, and getting a toll-free number and a fax number.
It also means building a website and getting it hosted through a company like GoDaddy, getting a business email linked directly to your domain, and using a brick and mortar address or a virtual address. That is, anything but your home address or a PO Box number or a UPS Box address.
When you factor in the difference between your small business credit score versus personal credit score, remember that any inquiries into your personal credit score are going to hurt that score. And a lot of businesses and lending institutions will perform inquiries when they are working with you for the very first time. You do not want their inquiries to have an effect on your personal credit.
Hence, if you can help it at all, try not to dip into personal savings or use personal credit cards. You want to rely on your business’s creditworthiness, and not your own.
You can’t get into Dun & Bradstreet’s system without having one, and they are absolutely free, anyway. A DUNS number differentiates your small business from all others, such as similarly-named companies. Dun & Bradstreet requires that you register your business on their site before they will provide a DUNS number.
Please keep in mind: there are a few slightly different ways of getting a DUNS number if your company is in a specific class. These include if your business is an American government contractor or grantee, or your company is Canadian, or you are working as an Apple developer.
If you run your business as a sole proprietor at least apply for DBA. If you do not, then your personal name will end up the same as your business name. As a result, you can still end up personally liable for all your small business financial obligations.
Also, per the Internal Revenue Service, using this structure you have a 1 in 7 chance of an IRS audit. This is in contrast to a 1 in 50 chance for incorporated businesses! Avoid confusion with this step. At the same time, you can dramatically reduce your chances of an Internal Revenue Service audit. So who wouldn’t want that?
Meet with your tax specialist or financial planner to determine which legal entity (sole proprietor, LLC or S-Corp) will ideally fit your small business and particular financial situation.
Incorporation can also help to safeguard your personal assets in case of a lawsuit. Once your corporation or LLC is registered on your state’s Secretary of State’s site, you can then get a Business Federal Tax ID Number. This is so you can open your business’s bank account.
The IRS keeps it straightforward to do this. You can apply on the internet once you ascertain your eligibility.
If this is so, then you can go ahead.
Ask your neighborhood financial institution about getting business checking and various other accounts. If you have been a reliable client on the personal side of things, and you can show your company is paying its bills punctually, then your financial institution is going to be a lot happier loaning to your business.
These are really any invoices which are the straightforward obligation of your small business. These include everything from Wi-Fi in your company’s name to the lease or a mortgage for your office space. Your small business could pay a cellular carrier or maybe the oil or gas bill, if that is appropriate. Your business will notice credit scores increase as you pay the bills in a timely manner.
When you build business credit with your EIN, it is a process. It does not occur automatically. A corporation needs to proactively work to develop corporate credit. However, it can be accomplished readily and quickly, and it is much more rapid than developing personal credit scores. Merchants are a big part of this process.
Accomplishing the steps out of order will result in repetitive 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 get a denial 100% of the time. Once you’ve done the first 10 steps, add these.
First you need to establish 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 start getting revolving store and cash credit.
These kinds of accounts have the tendency to be for the things bought all the time, like coffee, shipping boxes, outdoor work wear, ink and toner, and office furniture.
But first off, what is trade credit? These trade lines are creditors who will give you starter credit when you have none now. Terms are in most cases Net 30, rather than revolving.
Therefore, if you get an approval for $1,000 in vendor credit and use all of it, you must pay that money back in a set term, like within 30 days on a Net 30 account.
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 made use of.
To begin your business credit profile properly, you ought to get approval for vendor accounts that report to the business credit reporting agencies. When that’s done, you can then use 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 merchants that will grant an approval with negligible 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 revolving store credit. But you may need to apply more than one time to these vendors, and you may need to purchase some items you do not need to have, to validate you are dependable and will pay on time. Consider giving unwanted items to charity.
Uline Shipping Supplies is a true starter vendor. Find them online at https://www.uline.com/. They offer shipping, packing, and industrial supplies, and they report to D&B.
You have to have a DUNS number. They will ask for 2 references and a bank reference. The first few orders may need to be paid in advance to first get approval for Net 30 terms. Also, you may need to buy some things you don’t 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 bureaus, 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 monthly for 3 months, they will typically approve you for a Net 30 Account.
Grainger Industrial Supply is likewise 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 nearly anybody with a business license.
Non-Reporting Trade Accounts can also be helpful. While you do want trade accounts to report to a minimum of one of the CRAs, a trade account which does not report can still be of some worth. 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 financial planning easier. 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, move to revolving store credit. These are businesses such as Office Depot and Staples. These companies are more likely to have goods you need.
Use the business’s EIN on these credit applications.
One example 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 to 10 accounts reporting? Then progress to fleet credit. These are businesses such as BP and Conoco. Use this credit to purchase, repair, and take care of 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 need to see a PAYDEX Score of 78 or higher and a 411 company telephone listing. Shell might claim they want a specific amount of time in business or revenue. But if you already have enough vendor accounts, that won’t be necessary and you can still get an approval.
Have you been sensibly managing the credit you’ve up to this point? Then progress to cash credit. 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 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). In addition they want you to have an established corporation.
These are companies 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 in reach.
Know what is happening with your credit. Make sure it is being reported and attend to any errors as soon as possible. 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 only $24/month. See: https://www.creditsuite.com/business-credit-monitoring. At D&B you can monitor at: https://www.dandb.com/credit-builder/. Update the info if there are mistakes or the data is incomplete.
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 typically want you to dispute in a particular way.
Disputing credit report inaccuracies typically means you send a paper letter with duplicates of any evidence of payment with it. These are documents like receipts and cancelled checks. Never send the originals. Always send copies and keep the originals.
Disputing credit report inaccuracies also means you specifically detail any charges you dispute. Make your dispute letter as crystal clear as possible. Be specific about the issues with your report. Use certified mail so that you will have proof that you mailed in your dispute.
Always use credit responsibly! Don’t borrow more than what you can pay off. Track balances and deadlines for payments. Paying off punctually and fully will do more to boost business credit scores than almost anything else.
Growing company credit pays off. Excellent business credit scores help a business get loans. Your loan provider knows the business can pay its debts. They recognize the business is for real. The small business’s EIN links to high scores, and creditors won’t feel the need to require a personal guarantee.
Business credit is an asset which can help your company for many years to come.
Bolster the professionalism of your company and keep your personal and business credit separate. Use your EIN instead of your Social Security number. Let your business’s creditworthiness do the heavy lifting. Learn more here and get started so you can build business credit with your EIN.