Published By Janet Gershen-Siegel at November 4th, 2018
Your businesses credit can be improved. So that means your firm gets opportunities you never knew you would. And these opportunities make it easier to succeed.
You can get all-new equipment, bid on real property, and cover the company payroll. And this is even when times are a bit lean. This is especially helpful in holiday business enterprises, where you can go for several months with only nominal sales.
Because of this, you really should work on building your company credit. Improve and maintain your scores and you will have these chances. Do not, and either you do not get these opportunities. Or they will set you back you a lot more.
And no small business owner wants that. You will need to understand how your businesses credit can be improved.
All Businesses Credit Can Be Improved: Your Payment History is Important
Overdue payments will have an effect on your small business credit score for a good seven years. If you pay your business debts off, as quickly as possible and as completely as possible, then you can make a very real difference when it relates to your credit scores.
Make sure to pay timely and you will experience the rewards of promptness.
This is generally how long your company has been working with company credit. Needless to say newer firms will have short credit histories. Though there is not so much you can specifically do about that, do not worry.
Credit reporting bureaus will also take a look at personal credit score and your history of payments. If your individual credit is good, and particularly if you have a fairly lengthy credit history, then your individual credit can come to the rescue of your company.
Naturally the opposite is also right. If your personal credit history is poor, then it will have a bearing on your business credit scores. And it will continue to do so until your business and personal credit can be separated.
Your credit utilization rate is the amount on credit. So it is then divided by total available credit.
Lenders, generally speaking, do not like to see this exceed 30%. So for each $100 in credit, do not borrow on over $30 of that. If this percentage is climbing, you’ll have to spend down and pay your debts before borrowing more.
Are you having an unsatisfactory business year? Then it could wind up on your personal credit score. And if your small business has not been in existence for too long, it will directly influence your business credit.
Fortunately, you can unlink both by taking steps to unlink them.
For instance, you can get credit cards just for your business. Or you could open up business checking accounts and various other bank accounts. So then the credit reporting agencies will begin to treat your personal and corporate credit on an individual basis.
Also, make sure to incorporate, or at least file a DBA.
You can also take care of your company’s monthly bills with your firm credit card or checking account. And make certain it is the business’s name on the bill and not your own.
Just like every single entity around, credit reporting agencies like Equifax and Experian are only as good as their records. If your company’s name is similar to another’s, or your name is a lot like another entrepreneur’s, there could be some errors.
So keep an eye on those reports, and your business report at Dun & Bradstreet, PAYDEX. Stay on top of these reports and challenge charges with paperwork and crystal clear communications. Do not just allow them to stay wrong! You can fix this!
And while you’re at it, monitor the credit reporting bureau which solely handles individual and not business credit, TransUnion. If you do not know how you can pull a credit report, do not stress. It’s simple.
Corporate credit is credit in a small business’s name. It doesn’t connect to an owner’s individual credit, not even if the owner is a sole proprietor and the sole employee of the small business. Hence, an entrepreneur’s business and individual credit scores can be very different.
Due to the fact that company credit is distinct from personal, it helps to secure 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 separate cards from the same merchant. This effectively doubles purchasing power.
Another advantage is that even start-ups can do this. Going to a bank for a business loan can be a formula for disappointment. But building business credit, when done correctly, is a plan for success.
Individual credit scores depend upon payments but also additional considerations like credit use percentages. But for company credit, the scores really only hinge on if a small business pays its invoices on a timely basis.
Growing company credit is a process, and it does not happen automatically. A company will need to proactively work to develop business credit. Nonetheless, it can be done readily and quickly, and it is much more rapid than developing individual credit scores. Vendors are a big aspect of this process.
Accomplishing the steps out of order will lead to repetitive rejections. 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 denial 100% of the time.
A corporation has to be bona fide to loan providers and merchants. That’s why, a company will need a professional-looking website and email address, with site hosting bought from a vendor such as GoDaddy. Plus business telephone and fax numbers must have a listing on 411.com.
At the same time the business phone 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 must have every one of the licenses necessary for running. These licenses all have to be in the perfect, accurate name of the small business, with the same business address and telephone numbers. Note that this means not just state licenses, but possibly also city licenses.
Visit the IRS web site and acquire an EIN for the small business. Pick a business entity like corporation, LLC, etc. A company can begin as a sole proprietor but will most likely wish to switch to a sort of corporation or partnership to limit risk and optimize tax benefits.
If you are a sole proprietor, then at the very least be sure to file for a DBA. If you do not, then your personal name is the same as the business name. Therefore, you can end up being personally liable for all company debts.
Also, per the Internal Revenue Service, using this structure there is a 1 in 7 probability of an IRS audit. There is a 1 in 50 probability for corporations! Prevent confusion and significantly decrease the chances of an Internal Revenue Service audit simultaneously.
Start at the D&B web site and get a cost-free DUNS number. A DUNS number is how D&B gets a small business into 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 sites for the company. You can do this at https://www.creditsuite.com/reports/. If there is a record with them, check it for accuracy and completeness. If there are no records with them, go to the next step in the process. In this manner, Experian and Equifax will have activity to report on.
Start with the vendor credit tier. First you must establish trade lines that report. This is also called 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 getting retail and cash credit.
These varieties 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 first of all, what is trade credit? These trade lines are credit issuers who will give you preliminary credit when you have none now. Terms are ordinarily Net 30, instead of 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 need to be paid in full within 30 days. 60 accounts within 60 days. Compared to with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you made use of.
To launch your business credit profile properly, you ought to get approval for vendor accounts that report to the business credit reporting bureaus.
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. You also want them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.
But you may have to apply more than once to these vendors, and you may have to buy some things you don’t need to have, to demonstrate you are trustworthy and will pay promptly.
Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs move onto the retail credit tier. These are companies which include Office Depot and Staples. These companies are likelier to have products 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.
Are there 8 to 10 accounts reporting? Then progress to the fleet credit tier. These are service providers such as BP and Conoco. Use this credit to purchase, fix, and take care of vehicles. Make certain to apply using the corporation’s EIN.
Have you been responsibly managing the credit you’ve up to this point? Then move onto the cash credit tier. These are companies such as Visa and MasterCard. Keep your SSN off these applications; use your EIN instead.
These are companies 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 doable.
Know what is happening with your credit. Make certain it is being reported and attend to any mistakes as soon as possible. Get in the habit 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. Update the data if there are errors or the relevant information is incomplete.
So, what’s all this monitoring for? It’s to fix business credit mistakes in your records. Mistakes in your credit report(s) can be fixed. But the CRAs usually want you to dispute in a particular way.
Disputing credit report errors generally means you send a paper letter with duplicates of any proof of payment with it. These are documents like receipts and cancelled checks. Never send the originals. Always mail copies and retain the originals.
Disputing credit report inaccuracies also means you specifically detail any charges you contest. Make your dispute letter as clear as possible. Be specific about the problems with your report. Use certified mail so that you will have proof that you mailed in your dispute.
Always use credit smartly! Don’t borrow more than what you can pay off. Keep track of balances and deadlines for payments. Paying on schedule and completely will do more to increase business credit scores than almost anything else.
Building small business credit pays. Good business credit scores help a company get loans. Your credit issuer knows the business can pay its financial obligations. They know the small business is authentic. The corporation’s EIN links to high scores, and credit issuers won’t feel the need to call for a personal guarantee.
Business credit is an asset which can help your small business for years to come.
Once you recognize what affects your company credit score, you are that much closer to making sure your businesses credit can be improved.