Published By Janet Gershen-Siegel at August 7th, 2021
Yes, you really can build EIN credit for your business.
But let’s start with some definitions and background on business credit.
This is credit in a business’s name. It is not tied to the owner’s creditworthiness. Instead, business credit scores depend on how well a company can pay its bills. Hence consumer and business credit scores can vary dramatically.
There are no demands for a personal guarantee. You can quickly get business credit regardless of personal credit quality. And there is no personal credit reporting of business accounts. Business credit utilization won’t affect your consumer FICO score. Plus the business owner isn’t personally liable for the debt the business incurs. This can be true for you as you build EIN credit for your business.
Another advantage is that even startup businesses can do this. Visiting a bank for a business loan can be a recipe for frustration. But building business credit, when done correctly, is a plan for success.
Consumer credit scores depend on payments but also various other factors like credit utilization percentages.
But for company credit, the scores truly just hinge on if a small business pays its invoices timely.
Being accepted for business credit is not automatic. Building business credit requires some work. Some of the steps are intuitive, and some of them are not.
Vendors are a big component of this process.
Doing the steps out of sequence results in repetitive rejections. No one 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.
A company must be fundable to lending institutions and vendors.
That is why, a small business needs a professional-looking website and email address. And it needs to have site hosting from a company such as GoDaddy.
Additionally, business phone numbers need to have a listing on 411. You can do that here: http://www.listyourself.net.
Also, the business telephone number should be toll-free (800 exchange or the equivalent).
A company also needs a bank account devoted strictly to it, and it must have every one of the licenses essential for running.
These licenses all have to be in the identical, accurate name of the company. And they must have the same company address and telephone numbers.
So keep in mind, that this means not just state licenses, but possibly also city licenses.
Visit the Internal Revenue Service website and get an EIN for the company. They’re free of charge. Select a business entity like corporation, LLC, etc.
A small business may get started as a sole proprietor. But they absolutely need to change to a form of corporation or an LLC.
This is to decrease risk. And it will make the most of tax benefits.
A business entity matters when it involves taxes and liability in the event of a lawsuit. A sole proprietorship means the business owner is it when it comes to liability and taxes. No one else is responsible.
The best thing to do is to incorporate. You should only look at a DBA as an interim step on the way to incorporation.
Start at the D&B web site and get a totally free D-U-N-S number. A D-U-N-S number is how D&B gets a small 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 web sites for the company. You can do this at www.creditsuite.com/reports. If there is a record with them, check it for correctness and completeness. If there are no records with them, go to the next step in the process.
This way, Experian and Equifax have something to report on.
First you should build tradelines that report. 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 to get credit for numerous purposes, and from all sorts of places.
These kinds of accounts tend to be for things bought all the time, like marketing materials, 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 give you starter credit when you have none now. Terms are generally Net 30, versus revolving.
Therefore, if you get an approval for $1,000 in vendor credit and use all of it, you need to pay that money back in a set term, like within 30 days on a Net 30 account.
Net 30 accounts must be paid in full within 30 days. 60 accounts must be paid completely within 60 days. Unlike revolving accounts, you have a set time when you must pay back what you borrowed or the credit you made use of.
To launch your business credit profile the proper 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 in the same way true starter credit can. These are vendors that grant approval with a minimum of effort. You also need them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.
As you get starter credit, you can also start to get credit from retailers. Here are some stellar choices from us: https://www.creditsuite.com/blog/5-vendor-accounts-that-build-your-business-credit/
Uline is a true starter vendor. You can find them online at www.uline.com. They sell shipping, packing, and industrial supplies, and they report to Dun & Bradstreet and Experian. You MUST have a D-U-N-S number and an EIN before starting with them. They will ask for your corporate bank information. Your company address must be uniform everywhere. You need for an order to be $50 or more before they’ll report it. Your first few orders may need to be prepaid initially so your business can get approval for Net 30 terms.
Check out starter vendor Marathon. Marathon Petroleum Company provides transportation fuels, asphalt, and specialty products throughout the United States. Their comprehensive product line supports commercial, industrial, and retail operations. This card reports to Dun & Bradstreet, Experian, and Equifax. Before applying for multiple accounts with WEX Fleet cards, make sure to have enough time in between applying so they don’t red-flag your account for fraud.
To qualify, you need:
Your SSN is required for informational purposes. If concerned they will pull your personal credit talk to their credit department before applying. You can give a $500 deposit instead of using a personal guarantee, if in business less than a year. Apply online. Terms are Net 15. Get it here: https://www.marathonbrand.com/.
Grainger Industrial Supply is likewise a true starter vendor. You can find them online at www.grainger.com. They sell hardware, power tools, pumps and more. They also do fleet maintenance. And they report to D&B. You need a business license, EIN, and a D-U-N-S number.
Your business entity must be in good standing with the applicable Secretary of State. If your business doesn’t have established credit, they will require additional documents. So, these are items like accounts payable, income statement, balance sheets, and the like.
Apply online or over the phone.
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 value.
You can always ask non-reporting accounts for trade references. And also, credit accounts of any sort ought to help you to better even out business expenditures, thus making financial planning simpler.
Know what is happening with your credit. Make certain it is being reported and address any errors as soon as possible. Get in the practice of checking credit reports. Dig into the particulars, not just the scores.
We can help you monitor business credit at Experian, Equifax, and D&B for a lot less than it would cost you at the CRAs. See: www.creditsuite.com/monitoring.
Update the info if there are inaccuracies or the data is incomplete.
So, what’s all this monitoring for? It’s to challenge any errors in your records. Mistakes in your credit report(s) can be taken care of. But the CRAs usually want you to dispute in a particular way.
Disputing credit report mistakes typically means you send a paper letter with copies of any proof of payment with it. These are documents like receipts and cancelled checks. Never send the originals. Always mail copies and keep the original copies.
Fixing credit report errors also means you specifically detail any charges you challenge. Make your dispute letter as clear as possible. Be specific about the concerns with your report. Use certified mail to have proof that you sent in your dispute.
Always use credit smartly! Never borrow more than what you can pay off. Monitor balances and deadlines for repayments. Paying on schedule and fully does more to increase business credit scores than nearly anything else.
Building small business credit pays off. Excellent business credit scores help a small business get loans. Your lender knows the small business can pay its financial obligations. They know the company is for real.
The small business’s EIN links to high scores and loan providers won’t feel the need to request a personal guarantee.
Business credit is an asset which can help your small business for years to come. Learn more here and get started toward establishing small business credit.