Published By Janet Gershen-Siegel at March 11th, 2018
Building business credit means that your small business gets chances you never assumed you would. When you build business credit, new doors open.
You can get brand new equipment, bid on real property, and deal with the company payroll. And you can do so even when times are a bit lean. This is especially helpful in seasonal companies, where you can go for several months with merely low sales.
Given this, you should really focus on building your business credit. Boost and maintain your scores and you will have these chances. Do not, and either you do not get these opportunities, or they will cost you a lot more. And no business owner wants that.
You have to know what affects your small business credit before you can make it better.
This is in essence how long your firm has been working with company credit. Obviously newer firms will have short credit histories. Though there is not too much you can specifically do about that, do not panic. Credit reporting agencies will also look into your personal credit score and your record of payments. If your personal credit is good, and particularly if you have a somewhat extensive credit history, then your consumer credit can come to the rescue of your company.
Obviously the opposite is also true. So if your consumer credit history is bad, then it will affect your company credit scores until your small business and individual credit can be separated.
Late monthly payments will affect your small business credit score for a good seven years. If you pay your small business (and personal) debts off, as speedily as possible and as fully as possible, then you can make a very real difference when it concerns your credit scores. Make certain to pay promptly and you will experience the rewards of punctuality.
Are you having an unsatisfactory business year? Then it could land on your individual credit score. And just in case your small business has not been in existence for too long, it will directly influence your company credit.
That being said, you can unlink the two by taking measures to separate them. Say, if you get credit cards just for your small business, or you open up business checking accounts and other bank accounts, then the credit reporting bureaus will start to treat your personal and company credit independently. Also, make sure to incorporate, or at least file a DBA. You can also pay for your company’s debts with your company credit card or checking account, and make certain it is the company’s name on the bill and not yours.
Just the same as every entity around, credit reporting agencies such as Equifax and Experian are only as good as their files. If your company’s name resembles another’s, or your name is a lot like another small business owner’s, there can potentially be some oversights. So check those reports, and your small business report at Dun & Bradstreet, PAYDEX.
Stay on top of these reports and question charges with records and crystal clear 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 bureau which exclusively handles individual and not business credit, TransUnion. If you do not know the way to pull a credit report, do not worry. It is easy.
Credit utilization rate just shows the amount of cash you have on credit. It is then divided by your overall available credit. Lenders normally do not like to see this exceed 30%. Sso for every $100 in credit, do not borrow on over $30 of that. If this percent is climbing, you’ll have to spend down. And pay off your debts ahead of borrowing more.
Business credit is credit in a business’s name. It doesn’t tie to an owner’s consumer credit, not even when the owner is a sole proprietor and the solitary employee of the small business. Therefore, a business owner’s business and consumer credit scores can be very different.
Considering that small business credit is independent from consumer, it helps to safeguard a small business owner’s personal assets, in case of litigation or business insolvency. Also, with two distinct credit scores, an entrepreneur can get two different cards from the same vendor. This effectively doubles purchasing power.
Another benefit is that even new ventures can do this. Going to a bank for a business loan can be a formula for frustration. But building company credit, when done correctly, is a plan for success.
Individual credit scores rely on payments but also additional elements like credit usage percentages. But for small business credit, the scores actually merely depend on whether a small business pays its debts promptly.
Establishing company credit is a process, and it does not happen automatically. A business will need to proactively work to establish company credit. That being said, it can be done easily and quickly, and it is much speedier than building individual credit scores.
Vendors are a big aspect of this process.
Undertaking the steps out of order will lead to repetitive denials. No one can start at the top with business credit. For instance, you can’t start with store or cash credit from your bank. If you do you’ll get a rejection 100% of the time.
A small business has to be legitimate to lenders and vendors. Consequently, a small business will need a professional-looking web site and e-mail address, with website hosting from a merchant like GoDaddy.
Additionally business telephone and fax numbers must have a listing on 411.com.
And the business telephone number should be toll-free (800 exchange or the equivalent).
A small business will also need a bank account dedicated purely to it, and it needs to have all of the licenses essential for running. These licenses all must be in the accurate, accurate name of the small business, with the same 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 website and get an EIN for the company. They’re totally free. Select a business entity like corporation, LLC, etc.
A business can get started as a sole proprietor. But they will probably want to switch to a kind of corporation or partnership to minimize risk and make best use of tax benefits.
A business entity will matter when it concerns taxes and liability in the event of litigation. A sole proprietorship means the owner is it when it comes to liability and tax obligations. Nobody else is responsible.
If you run a small business as a sole proprietor, then at least be sure to file for a DBA (‘doing business as’) status.
If you do not, then your personal name is the same as the business name. Therefore, you can end up being directly liable for all small business financial obligations.
Plus, according to the Internal Revenue Service, by having this structure there is a 1 in 7 chance of an IRS audit. There is a 1 in 50 chance for corporations! Steer clear of confusion and dramatically decrease the odds of an Internal Revenue Service audit simultaneously.
Start at the D&B website and obtain a cost-free DUNS number. A DUNS number is how D&B gets a company in their system, to generate a PAYDEX score. If there is no DUNS 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 business. You can do this at https://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.
By doing this, Experian and Equifax will have activity to report on.
First you ought to build 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 getting retail store and cash credit.
These types 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 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 often Net 30, rather than revolving.
So 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 have to be paid in full within 30 days. 60 accounts have to be paid completely 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 start your business credit profile properly, you should get approval for vendor accounts that report to the business credit reporting bureaus. Once 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 hardly any effort. You also need 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 once to these vendors, and you may need to buy some things you do not need, to validate you are responsible and will pay promptly.
Consider donating unwanted items to charity.
Uline Shipping Supplies is a true starter vendor. Find them online at https://www.uline.com/. They sell shipping, packing, and industrial supplies, and they report to D&B.
You need to have a DUNS number. They will ask for 2 references and a bank reference. The first few orders may have to be prepaid to initially get approval for Net 30 terms. Also, you may have to buy some items you do not need.
Quill is another 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.
Because 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.
Generally they’ll put you on a 90 day prepayment schedule. If you order items every month for 3 months, they will in most cases approve you for a Net 30 Account.
Grainger Industrial Supply is also 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 a business license, EIN, and a DUNS number. For less than $1000 credit limit they will approve nearly anyone 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 yet be of some value. You can always ask non-reporting accounts for trade references.
And also credit accounts of any sort will help you to better even out business expenditures, thus making budgeting less complicated. These are providers 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 service providers which include Office Depot and Staples. These companies are likelier to have supplies you need.
Use the company’s EIN on these credit applications.
One instance is Lowe’s. They report to D&B, Equifax and Business Experian. They need to see a DUNS and a PAYDEX score of 78 or higher.
Are there 8 to 10 accounts reporting? Then progress to the fleet credit tier. These are businesses like BP and Conoco. Use this credit to buy, 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 need to see a PAYDEX Score of 78 or higher and a 411 company phone listing. Shell might claim they want a specific amount of time in business or revenue.
But if you already have adequate vendor accounts, that won’t be necessary and you can still get approval.
Have you been sensibly handling the credit you’ve gotten up to this point? Then move onto the cash credit tier. These are businesses such as 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 more; 10 trade lines reporting on your D&B report; and a $10,000 high credit limit reporting on D&B report (other account reporting).
Additionally they want you to have an established company.
These are service providers such as 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 doable.
Know what is happening with your credit. Make sure it is being reported and take care of any mistakes ASAP. Get in the practice of checking 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: https://www.creditsuite.com/business-credit-monitoring. At D&B you can monitor at: https://www.dandb.com/credit-builder/.
At Experian, you can monitor your account at: http://www.smartbusinessreports.com/Landing/1217/.
And at Equifax, you can monitor your account at: http://www.equifax.com/business/business-credit-monitor-small-business. Experian and Equifax are $19.99; D&B ranges from $49.99 to $99.99.
Update the relevant information if there are mistakes or the details is incomplete. At D&B, you can do this at: https://iupdate.dnb.com/iUpdate/viewiUpdateHome.htm.
So, what’s all this monitoring for? It’s to contest any problems in your records. Errors in your credit report(s) can be taken care of. But the CRAs normally want you to dispute in a particular way.
Get your company’s PAYDEX report at: http://www.dnb.com/about-us/our-data.html. Get your company’s Experian report at: http://www.businesscreditfacts.com/pdp.aspx?pg=SearchForm. And get your Equifax business credit report at: http://www.equifax.com/business/credit-information.
Disputing credit report inaccuracies generally means you send a paper letter with duplicates of any proofs of payment with it. These are documents like receipts and cancelled checks. Never mail the originals. Always mail copies and keep the original copies.
Fixing credit report errors also means you specifically spell out any charges you challenge. Make your dispute letter as understandable 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 directions here: http://www.equifax.com/small-business-faqs/#Dispute-FAQs. Dispute mistakes on your or your small business’s Experian report by following the directions here: http://www.experian.com/small-business/business-credit-information.jsp.
And D&B’s PAYDEX Customer Service phone number is here: https://www.dandb.com/glossary/paydex/.
Always use credit smartly! Don’t borrow more than what you can pay off. Monitor balances and deadlines for repayments. Paying on time and fully will do more to raise business credit scores than just about anything else.
Growing business credit pays off. Great business credit scores help a business get loans. Your lending institution knows the business can pay its debts. They understand the small business is bona fide.
The small business’s EIN attaches to high scores, and loan providers won’t feel the need to request a personal guarantee.
Once you know what impacts your small business credit score, you are that much nearer to developing enhanced business credit. Learn more here and get started toward building business credit.