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Business Credit Score vs Personal Credit Score

Published By Janet Gershen-Siegel at August 14th, 2018

Written by Janet Gershen-Siegel

Do You Know the Differences between Your Business Credit Score vs Personal Credit Score?

Consider your business credit score vs personal credit score. Keep business and personal credit separate. We have the best ways to make sure your business credit doesn’t report on your consumer credit reports.

Keep Your Business Credit Separate From Your Consumer Credit

When you factor in the difference between your business credit score versus personal credit score, remember that any inquiries into your consumer credit score are going to adversely affect that score. And a lot of merchants and lending institutions will undertake inquiries when they are doing business with you for the very first time. You do not want their inquiries to impact your consumer credit.

Get a Dun & Bradstreet DUNS number

You can’t get into Dun & Bradstreet’s system without having one, and they are totally free, anyway. A DUNS number differentiates your small business from all others, including similarly-named companies. Dun & Bradstreet has a prerequisite that you register your company on their website before they will hand over a DUNS number.

Please note: there are a few marginally different methods of obtaining a DUNS if your business is in a certain class. These include if your business is an USA government contractor or grantee, or your company is in Canada, or you are doing work as an Apple developer.

File a DBA

If you run your small business as a sole proprietor at least apply for DBA (‘ doing business as’) status. If you do not, then your personal name will wind up the same as your company name. As a result, you can still find yourself being directly obligated for all your business financial obligations.

Plus, per the Internal Revenue Service, with this structure you have a 1 in 7 likelihood of an IRS audit. This is in contrast to a 1 in 50 possibility for incorporated businesses! Avoid confusion with this step, and you can dramatically reduce your chances of an IRS audit. And who would not want that?

Go Beyond a DBA and Establish Your Company as a Distinct Legal Entity Through Incorporating

Get together with your tax consultant or financial planner so as to opt for which legal entity will best fit your small business and specific financial circumstances. These are sole proprietor, LLC or S-Corp. Also, partnership is possible if there is more than one owner.

Incorporation can also help to protect your personal assets in case of a law suit. Once your corporation or LLC is registered on your state’s Secretary of State’s website, you can then get a Business Federal Tax ID Number. And then you can open your business’s bank account.

Get an EIN (Employment Identification Number, Also Known as a TIN, or Tax ID Number)

The IRS makes it uncomplicated to accomplish this. You can apply on the internet as soon as you ascertain your eligibility.

  • Is your main business located in the U.S. or in USA Territories?
  • Does the person who is applying have a valid Taxpayer Identification Number (SSN [Social Security Number], EIN, or ITIN [Individual Taxpayer ID Number]

If this is so, then you can go ahead.

Start Small Business Checking and Savings Accounts

Have a talk with your local financial institution about getting business checking and various other accounts. If you have been a dependable customer on the personal side of things, and you can show your company is satisfying its bills without delay, then your bank is going to be a lot happier loaning to your business. Hence opening accounts will help there.

Secure Suitable Invoices Through Your Business

These are really any bills which are the direct obligation of your company. Or, at the very least, they ought to be. These consist of everything from Wi-Fi in your company’s name to the lease or a mortgage for your office.

Your company could pay a cellular provider or maybe the oil or gas bill, if that is appropriate. Not all providers report to the credit reporting agencies. But some do, so your company will notice credit scores rise as you pay the expenses promptly.

Build Business Credit

Of course the easiest and best way to separate business credit score vs personal credit score is to build credit for your business. Many of the above tips apply to building business credit. So here’s the rest of the means of business credit building.

The Benefits

For the reason that company credit is separate from consumer, it helps to protect a small business owner’s personal assets. This is in the event of litigation 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 benefit is that even startup businesses can do this. Heading to a bank for a business loan can be a formula for disappointment. But building corporate credit, when done properly, is a plan for success.

Individual credit scores depend upon payments but also various other factors like credit utilization percentages. But for small business credit, the scores truly only hinge on whether a business pays its debts punctually.

The Process

Growing business credit is a process, and it does not happen automatically. A small business needs to actively work to establish business credit. Having said that, it can be accomplished readily and quickly, and it is much more efficient than establishing individual credit scores. Vendors are a big aspect of this process.

Doing the steps out of sequence will result in repetitive denials. Nobody can start at the top with business credit. For example, you can’t start with store or cash credit from your bank. If you do you’ll get a rejection 100% of the time.

Company Legitimacy

A small business needs to be trustworthy to lending institutions and merchants. That is why, a corporation will need a professional-looking website and e-mail address, with website hosting from a company such as GoDaddy. Additionally company phone and fax numbers need to have a listing on 411.com.

Additionally 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 all of the licenses essential for operating. These licenses all must be in the particular, appropriate name of the corporation, with the same small business address and phone numbers. Keep in mind that this means not just state licenses, but potentially also city licenses.

Trade Lines

First you should establish trade lines that report. This is also referred to 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 start obtaining revolving store and cash credit.

These types of accounts tend to be for the things bought all the time, like coffee, shipping boxes, outdoor work wear, ink and toner, and office furniture.

But first off, what is trade credit? These trade lines are creditors who will give you starter credit when you have none now. Terms are typically Net 30, rather than revolving.

Therefore, if you get approval for $1,000 in vendor credit and use all of it, you will need to pay that money back in a set term, like within 30 days on a Net 30 account.

Details

Net 30 accounts need to be paid in full within 30 days. 60 accounts must be paid fully within 60 days. Compared to with revolving accounts, you have a set time when you have to 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 agencies. 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 like true starter credit can. These are merchants that will grant an approval with negligible effort. You also need them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.

But you may need to apply more than once to these vendors, and you may have to buy some items you don’t need to have, to demonstrate you are reliable and will pay punctually. Consider giving nonessential things to charity.

Revolving Store Credit

Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, progress to revolving store credit. These are service providers which include Office Depot and Staples. These companies are likelier to have supplies you need.

Use the corporation’s EIN on these credit applications.

One example is Lowe’s. They report to D&B, Equifax and Business Experian. They want to see a DUNS and a PAYDEX score of 78 or higher.

Fleet Credit

Are there 8 to 10 accounts reporting? Then move onto fleet credit. These are companies like BP and Conoco. Use this credit to purchase, fix, and maintain vehicles. 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 small business telephone listing. Shell might say they want a certain amount of time in business or revenue. But if you already have sufficient vendor accounts, that won’t be necessary and you can still get an approval.

Cash Credit

Have you been responsibly handling the credit you’ve gotten up to this point? Then move to cash credit. These are businesses like 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 higher; 10 trade lines reporting on your D&B report; and a $10,000 high credit limit reporting on D&B report (other account reporting). Plus they want you to have an established corporation.

These are businesses such as Walmart and Dell, and also Home Depot, BP, and Racetrac. These are normally MasterCard credit cards. If you have 14 trade accounts reporting, then these are attainable.

Monitor Your Business Credit

Know what is happening with your credit. Make certain it is being reported and take care of any errors 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: https://www.creditsuite.com/business-credit-monitoring. Update the details if there are inaccuracies or the data is incomplete.

Fixing Errors

So, what’s all this monitoring for? It’s to dispute any inaccuracies in your records. Errors in your credit report(s) can be fixed. But the CRAs generally want you to dispute in a particular way.

Disputing credit report inaccuracies generally means you mail a paper letter with duplicates of any evidence of payment with it. These are documents like receipts and cancelled checks. Never mail the original copies. Always mail copies and keep the original copies.

Disputing credit report mistakes also means you precisely spell out any charges you contest. Make your dispute letter as crystal clear as possible. Be specific about the concerns with your report. Use certified mail so that you will have proof that you mailed in your dispute.

A Word about Building Business Credit

Always use credit sensibly! Don’t borrow more than what you can pay off. Monitor balances and deadlines for repayments. Paying off on schedule and completely will do more to raise business credit scores than almost anything else.

Establishing corporate credit pays. Good business credit scores help a corporation get loans. Your loan provider knows the small business can pay its debts. They recognize the company is authentic. The small business’s EIN connects to high scores, and lenders won’t feel the need to ask for a personal guarantee.

Business credit is an asset which can help your corporation for years to come.

Takeaways for Business Credit Score vs Personal Credit Score

Bolster the professionalism of your company and keep your individual and company credit apart. Discover this new way to monitor your business credit score vs personal credit score.

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