Published By Janet Gershen-Siegel at December 16th, 2017
Do you need to know how to build your company credit score? Don’t fret; we’ve got you covered.
Business credit is credit in a small business’s name. It doesn’t connect to an entrepreneur’s individual credit, not even when the owner is a sole proprietor and the only employee of the business.
Consequently, an entrepreneur’s business and personal credit scores can be very different.
Due to the fact that small business credit is distinct from consumer, it helps to protect an entrepreneur’s personal assets, in the event of a lawsuit or business bankruptcy.
Also, with two distinct credit scores, an entrepreneur can get two different cards from the same merchant. This effectively doubles purchasing power.
Another advantage is that even new ventures can do this. Heading to a bank for a business loan can be a recipe for frustration. But building business credit, when done right, is a plan for success.
Individual credit scores rely on payments but also various other considerations like credit usage percentages.
But for small business credit, the scores actually merely depend on whether a business pays its debts on time.
Nonetheless, 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.
Accomplishing the steps out of sequence will result in repetitive rejections. Nobody can start at the top with business credit. For instance, 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 small business needs to be Fundable to loan providers and merchants.
Consequently, a business will need a professional-looking website and email address. And it needs to have site hosting from a company such as GoDaddy.
And, company phone need to have a listing on 411, which you can get via ListYourself.net.
Also, the business telephone number should be toll-free (800 exchange or similar).
A small business will also need a bank account dedicated strictly to it, and it has to have every one of the licenses essential for operation.
These licenses all must be in the accurate, appropriate name of the small business. And they need to have the same small business address and phone numbers.
So bear in mind, that this means not just state licenses, but potentially also city licenses.
Visit the Internal Revenue Service web site and get a free EIN for the business. Pick a business entity such as corporation, LLC, etc.
A business can start off as a sole proprietor. But they should switch to a variety of corporation or an LLC.
This is in order to limit risk. And it will maximize tax benefits.
A business entity will matter when it involves taxes 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 run 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 business name. Therefore, you can find yourself being directly responsible for all small business financial obligations.
But don’t look at any DBA filing as anything more than a steppingstone to incorporation.
Start at the D&B web site and get a free D-U-N-S number. A D-U-N-S number is how D&B gets a small business in 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 business. 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.
In this way, Experian and Equifax will have activity to report on.
First you must establish trade lines that report. This is also called vendor credit. 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 more credit.
These varieties of accounts often tend to be for the things bought all the time, like marketing materials, ink and toner, and office furniture.
But to start with, 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, rather than revolving.
Hence, if you get approval for $1,000 in vendor credit and use all of it, you need to pay that money back in a set term, such as within 30 days on a Net 30 account.
Net 30 accounts need to be paid in full within 30 days. 60 accounts have to be paid fully within 60 days. In contrast to with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you used.
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 like true starter credit can. These are vendors that will grant an approval with nominal effort. You also want them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.
You want 3 of these to move onto the next step. Here are some stellar choices from us: https://www.creditsuite.com/blog/5-vendor-accounts-that-build-your-business-credit/
Non-Reporting Trade Accounts can also be helpful. While you do want trade accounts to report to at the very least one of the CRAs, a trade account which does not report can also be of some worth.
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. These are companies like PayPal Credit, T-Mobile, and Best Buy.
Know what is happening with your credit. Make sure it is being reported and attend to any errors ASAP. Get in the practice of taking a look at credit reports. Dig into the details, not just the scores.
Update the info if there are mistakes or the details is incomplete.
So, what’s all this monitoring for? It’s to challenge any inaccuracies in your records. Mistakes in your credit report(s) can be corrected. But the CRAs normally want you to dispute in a particular way.
Disputing credit report mistakes typically means you specifically detail any charges you contest.
Always use credit responsibly! Don’t borrow beyond what you can pay off. Track balances and deadlines for repayments. Paying punctually and fully will do more to increase business credit scores than virtually anything else.
Building business credit pays. Good business credit scores help a small business get loans. Your lender knows the small business can pay its financial obligations. They know the business is bona fide.
The small business’s EIN connects to high scores and credit issuers won’t feel the need to ask for 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.