Published By Janet Gershen-Siegel at December 20th, 2018
Need business credit help? Here are three practical techniques to improve your business credit scores and they will cost you nearly nothing.
Boosting your business credit scores will make it easier for you to get loans and credit, and you will get better terms for both.
It can also be the difference between wanting company credit and loans, and not getting them at all. So here are three practical techniques to boost your small business credit scores.
How do you make your business’s payment history better? It’s simple. Just pay your invoices in a timely manner, and as close to ‘in full’ as you possibly can. That can be easier said than done. The fact is, in the same manner that you ought to keep your own personal spending within your means, you also must keep your company spending realistic.
No one can predict the future. All anybody can do is to go by whatever data is out there. Furthermore it should be interpreted in a way that is not excessively optimistic. For new small businesses, that should mean exploring industry trends.
For more businesses that are not so brand new, it means carefully inspecting your business’s performance. This ought to be under all sorts of conditions.
Hence if it appears your small business can potentially make $1 million next quarter, but you need to borrow money now, do not borrow over $1 million.
And you most likely should borrow even less than that. You need to keep your company spending in check and not wager the business’s future on a hunch. These are both great ways to get your credit balances down. Consequently, that will improve your payment history.
Consider that anything could happen, such as: your biggest supplier could go out of business, or your best worker could quit, or important crops could fail or any of a number of setbacks could happen. Being daring in business can often be a good idea. However, you still need to pay your small business’s bills.
This is essentially for how much time your company has been using small business credit. Naturally newer companies will have short credit histories. While there is not too much you can particularly do about that and there’s no real hack for that, per se, do not lose heart.
Credit reporting bureaus will also review your consumer credit score and your very own history of payments. If your consumer credit is good, and particularly if you have a fairly long credit history, then your personal credit can come to the rescue of your business. That is, you did not just get your first credit card just recently.
Naturally the opposite is also true. So if your personal credit history is poor, then it will influence your business credit scores until your business and consumer credit can be separated.
This means regularly getting and reviewing both your business and consumer credit reports. This is because, for new companies and sole proprietorships (and in particular if your business is both), credit bureaus will often look at your consumer credit at the same time.
For this reason, you will need to stay on top of both sets of scores, due to the fact that credit scoring reports can have errors and you have the right to dispute them. However, you will not know there are any mistakes unless you check.
To fix business credit generally involves sending a paper letter with copies of any proofs of payment with it. These are commonly going to be receipts and/or cancelled checks.
Never send the originals. Always send copies and retain the originals. Precisely detail any charges that you are questioning. Make certain to use certified mail so you will have proof that you sent in your dispute.
If there are no errors on your credit reports, then of course you cannot dispute anything. And please don’t try to pull a fast one and dispute your credit score if there is really nothing wrong with it! Credit reporting agencies, understandably so, are not going to like that.
Company credit is credit in a corporation’s name. It doesn’t attach to an entrepreneur’s personal credit, not even if the owner is a sole proprietor and the only employee of the business. As such, an entrepreneur’s business and personal credit scores can be very different.
Due to the fact that business credit is independent from personal, it helps to safeguard a small business owner’s personal assets, in case of legal action or business insolvency. Also, with two separate credit scores, a business owner can get two different cards from the same vendor. 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 formula for frustration. But building company credit, when done the right way, is a plan for success.
Individual credit scores depend on payments but also additional factors like credit usage percentages. But for corporate credit, the scores actually just depend on if a business pays its bills in a timely manner.
Establishing company credit is a process, and it does not happen automatically. A corporation will need to proactively work to develop corporate credit. Having said that, it can be done readily and quickly, and it is much quicker than building individual credit scores. Vendors are a big part of this process.
Undertaking the steps out of sequence will lead to repetitive denials. No one can start at the top with small business credit. For example, you can’t start with store or cash credit from your bank. If you do you’ll get a denial 100% of the time.
A business has to be fundable to loan providers and merchants. For that reason, a small business will need a professional-looking website and e-mail address, with website hosting bought from a merchant such as GoDaddy. Additionally business phone and fax numbers need to have a listing on 411.com.
Additionally the company telephone number should be toll-free (800 exchange or the like).
A corporation will also need a bank account devoted strictly to it, and it must have every one of the licenses essential for operation. These licenses all have to be in the identical, correct name of the business, with the same company address and phone numbers. Note that this means not just state licenses, but possibly also city licenses.
Working with the Internal Revenue Service
Visit the Internal Revenue Service web site and acquire an EIN for the corporation. They’re free. Select a business entity such as corporation, LLC, etc. A business can begin as a sole proprietor but will most likely want to change to a variety of corporation or partnership to limit risk and optimize tax benefits.
A business entity will matter when it concerns tax obligations and liability in case of litigation. A sole proprietorship means the business owner is it when it comes to liability and tax obligations. Nobody else is responsible.
If you are a sole proprietor, then at the very least make sure to file for a DBA. If you do not, then your personal name is the same as the small business name. Therefore, you can end up being directly accountable for all business financial obligations.
Additionally, according to the Internal Revenue Service, by having this structure there is a 1 in 7 possibility of an IRS audit. There is a 1 in 50 possibility for corporations! Steer clear of confusion and drastically decrease the odds of an Internal Revenue Service audit at the same time.
Starting Off the Business Credit Reporting Process
Start at the D&B website and get a cost-free DUNS number. A DUNS number is how D&B gets a corporation in their system, to produce 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 sites for the company. 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 so, Experian and Equifax will have something to report on.
Vendor Credit Tier
Start with the vendor credit tier. First you ought to establish trade lines that report. This is also known as 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 get to the retail and cash credit tiers.
These types of accounts often tend 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 initial credit when you have none now. Terms are oftentimes Net 30, instead of revolving.
Hence if you get approval for $1,000 in vendor credit and use all of it, you must pay that money back in a set term, such as 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 in full within 60 days. Unlike with revolving accounts, you have a set time when you have to pay back what you borrowed or the credit you used.
To launch 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 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 merchants that will grant an approval with a minimum of 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. And you will need to confirm you are dependable and will pay on time.
Accounts That Do Not Report
Non-Reporting Trade Accounts can also give your company business credit help. 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 value.
You can always ask non-reporting accounts for trade references. Plus credit accounts of any sort will help you to better even out business expenses, thereby making budgeting easier. These are providers like PayPal Credit, T-Mobile, and Best Buy.
Retail Credit Tier
Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, progress to the retail credit tier. These are companies like Office Depot and Staples. These companies are more likely to have items you need.
Use the small business’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 better.
Fleet Credit Tier
Are there 8 to 10 accounts reporting? Then move to the fleet credit tier. These are businesses such as BP and Conoco. Use this credit to purchase fuel, and to fix and maintain vehicles. Make certain to apply using the company’s EIN.
Cash Credit Tier
Have you been sensibly managing the credit you’ve up to this point? Then progress to the cash credit tier. These are businesses like Visa and MasterCard. Keep your SSN off these applications; use your EIN instead.
These are service providers like Walmart and Dell, and also Home Depot, BP, and Racetrac. These are usually 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 as soon as possible. Get in the habit of taking a look at 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/monitoring. Update the relevant information if there are mistakes or the data is incomplete.
So, what’s all this monitoring for? It’s to challenge any problems in your records. Mistakes in your credit report(s) can be taken care of. See #1, above
Always use credit responsibly! Don’t borrow beyond what you can pay off. Keep track of balances and deadlines for repayments. Paying in a timely manner and in full will do more to raise business credit scores than nearly anything else.
Growing small business credit pays. Excellent business credit scores help a corporation get loans. Your credit issuer knows the company can pay its debts. They recognize the corporation is authentic. The company’s EIN attaches to high scores, and loan providers won’t feel the need to call for a personal guarantee.
Business credit is an asset which can help your small business in years to come.
Business Credit Help When You Need It The Most
Take note of your company credit scores and the overall financial health of your business and you will be far more likely to succeed. Learn more here and get business credit help for your company.