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Published By Janet Gershen-Siegel at March 1st, 2018
Business credit made simple? Yes, really! We can take all of the mystery out of understanding and building business credit.
Business credit is credit in a company’s name. It doesn’t connect to a business owner’s individual credit, not even if the owner is a sole proprietor and the sole employee of the company.
As such, an entrepreneur’s business and consumer credit scores can be very different.
Also, with two distinct credit scores, an entrepreneur can get two separate cards from the same vendor. This effectively doubles buying power.
Another advantage is that even start-ups can do this. Going to a bank for a business loan can be a recipe for disappointment. But building business credit, when done correctly, is a plan for success.
Individual credit scores rely on payments but also other considerations like credit usage percentages.
But for company credit, the scores really only hinge on whether a company pays its debts promptly.
Building business credit is a process, and it does not occur without effort. A small business will need to actively work to establish business credit.
Nonetheless, it can be done easily and quickly, and it is much more efficient than establishing personal credit scores.
Vendors are a big component of this process.
Performing the steps out of sequence will cause repetitive denials. No one can start at the top with company 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 company must be fundable to loan providers and merchants.
That is why, a business will need a professional-looking website and email address. And it needs to have website hosting from a supplier like GoDaddy.
Plus, business phone and fax numbers need to have a listing on 411. You can do that here: http://www.listyourself.net.
Additionally, the business phone number should be toll-free (800 exchange or the equivalent).
A company will also need a bank account dedicated strictly to it, and it must have all of the licenses essential for operation.
These licenses all must be in the exact, appropriate name of the business. And they need to have the same company address and phone numbers.
So keep in mind, that this means not just state licenses, but possibly also city licenses.
Learn more here and get started with building business credit with your company’s EIN and not your SSN.
Visit the Internal Revenue Service website and get an EIN for the company. They’re totally free. Pick a business entity like corporation, LLC, etc.
A company can get started as a sole proprietor. But they will more than likely want to switch to a type of corporation or an LLC.
This is in order to minimize risk. And it will optimize tax benefits.
A business entity will matter when it concerns taxes and liability in the event of litigation. A sole proprietorship means the entrepreneur is it when it comes to liability and taxes. No one else is responsible.
If you run a 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 small business name. Therefore, you can end up being directly responsible for all business debts.
Plus, according to the IRS, using this arrangement there is a 1 in 7 possibility of an IRS audit. There is a 1 in 50 probability for corporations! Prevent confusion and dramatically lower the odds of an Internal Revenue Service audit as well.
Begin 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 company 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 web sites for the small 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 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 to get credit in the retail and cash credit tiers.
These sorts of accounts often tend to be for the things bought all the time, like marketing materials, 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 preliminary credit when you have none now. Terms are in most cases Net 30, rather than revolving.
So, 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 must 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 made use of.
To kick off your business credit profile the proper way, you should get approval for vendor accounts that report to the business credit reporting bureaus. As soon as 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.
Learn more here and get started with building business credit with your company’s EIN and not your SSN.
Not every vendor can help in the same way true starter credit can. These are vendors that will grant an approval with marginal 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 have to apply more than one time to these vendors. So, this is to confirm you are reliable and will pay timely. Here are some stellar choices from us: https://www.creditsuite.com/blog/5-vendor-accounts-that-build-your-business-credit/
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 companies which include Office Depot and Staples.
Only use your SSN and date of birth on these applications for verification purposes. For credit checks and guarantees, use the business’s EIN on these credit applications.
One good example is Lowe’s. They report to D&B, Equifax and Business Experian. They need to see a D-U-N-S and a PAYDEX score of 78 or higher.
Are there 8 to 10 accounts reporting? Then move to the fleet credit tier. These are service providers such as BP and Conoco. Use this credit to buy fuel, and to fix, and take care of vehicles. Just use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, make sure to apply using the 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 may say they want a particular amount of time in business or profits. But if you already have adequate vendor accounts, that won’t be necessary. And you can still get an approval.
Learn more here and get started with building business credit with your company’s EIN and not your SSN
Have you been responsibly 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. Only use your SSN and date of birth on these applications for verification purposes. For credit checks and guarantees, 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 higher. And they also want you to have 10 trade lines reporting on your D&B report.
Plus, they want to see a $10,000 high credit limit reporting on your D&B report (other account reporting).
In addition, they want you to have an established company.
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 attainable.
Know what is happening with your credit. Make sure it is being reported and fix any inaccuracies as soon as possible. Get in the practice 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: www.creditsuite.com/monitoring.
At Equifax, you can monitor your account at: www.equifax.com/business/business-credit-monitor-small-business. Experian is about $19.99.
Update the relevant information if there are mistakes or the relevant information is incomplete.
So, what’s all this monitoring for? It’s to contest any mistakes 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 commonly means you send a paper letter with copies of any proof of payment with it. These are documents like receipts and cancelled checks. Never mail the originals. Always send copies and keep the originals.
Fixing credit report errors also means you precisely itemize 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! Never borrow more than what you can pay off. Track balances and deadlines for repayments. Paying punctually and completely will do more to boost business credit scores than just about anything else.
Growing company credit pays. Good business credit scores help a business get loans. Your loan provider knows the company can pay its debts. They recognize the business is authentic.
The small business’s EIN connects to high scores and lending institutions won’t feel the need to require 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 company credit.