Published By Janet Gershen-Siegel at September 10, 2018
Written by Janet Gershen-Siegel
Do you need easy ways to manage your business credit? We’ve got five great ways to do so, and you can get started today. Managing your business credit will make it easier for you to get loans and credit, and you will get better terms for both.
It can also mean the difference between wanting company credit and loans, and not getting them at all. So here are five straightforward methods to manage your business credit.
Just like every entity around, credit reporting agencies like Equifax and Experian are only as good as their records. If your company’s title is similar to another’s, or your full name is a lot like another entrepreneur’s, there could be some mistakes.
So monitor those reports, and your business report at Dun & Bradstreet, PAYDEX. Stay on top of these reports and dispute charges with paperwork and clear communications. Do not just allow them to stay wrong! You can resolve this!
And while you’re at it, monitor the credit reporting bureau which only deals with personal and not commercial credit, TransUnion. If you do not know the way to pull a credit report, do not stress. It is simple. Just use Google.
This means on a regular basis getting and reviewing both your small business and consumer credit reports. This is because, for new companies and sole proprietorships, credit bureaus will often look at your consumer credit at the same time.
That’s why you will need to stay on top of both sets of scores, because 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.
Disputing a credit report mistake generally involves sending a paper letter with copies of any proofs of payment with it. These are usually going to be receipts and/or cancelled checks.
Never send the originals. Always send copies and keep the originals. Precisely detail any charges that you are disputing. Make certain to use certified mail so you will have proof that you sent your dispute.
If there are no inaccuracies 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.
How do you make your company’s payment history better? It’s simple. Just pay your bills promptly, and as close to ‘in full’ as you possibly can. That can be easier said than done. The reality is, just like you need to keep your personal spending within your means, you also must keep your small business spending realistic.
No one can predict the future. All anybody can do is to go by whatever information is available. Additionally it should be analyzed in a way which is not excessively optimistic. For new businesses, that should mean evaluating industry trends. For more businesses that are not so new, it means meticulously scrutinizing your business’s performance. This ought to be under all sorts of circumstances.
Hence if it looks as if your business can potentially make $1 million next quarter, but you need to borrow money now, do not borrow beyond $1 million. And you most likely should borrow even less than that. You need to keep company spending in check and not wager the company’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 how long your company has been taking advantage of business credit. Naturally newer businesses will have short credit histories. While there is not a lot you can specifically do about that and there’s no real hack for that, per se, do not despair.
Credit reporting bureaus will also review consumer credit score and your own history of payments. If your personal credit is good, and particularly if you have a fairly long credit history, then your consumer credit can come to the rescue of your business.
Naturally the opposite is also true. If your personal credit history is poor, then it will influence your company credit scores until your small business and consumer credit can be split up.
Credit utilization rate simply means the quantity of money you have on credit which is then divided by your total available credit. Lenders commonly do not want to see this go above 30%. So for every $100 in credit, do not borrow on greater than $30 of that. If this percent is rising, you’ll need to spend down and satisfy your financial obligations before borrowing more.
Business credit is an asset which can help your small business for many years to come.
Building corporate credit is a process, and it does not happen automatically. A company needs to actively work to establish company credit. Nevertheless, it can be done easily and quickly, and it is much quicker than establishing individual credit scores. Merchants are a big part of this process.
Carrying out the steps out of sequence will cause 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 denial 100% of the time.
A business must be respectable to lending institutions and vendors. For this reason, a corporation will need a professional-looking web site and e-mail address, with site hosting from a vendor like GoDaddy. And also business telephone and fax numbers should have a listing on 411.com.
In addition 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 needs to have all of the licenses essential for operation. These licenses all have to be in the accurate, accurate name of the business, with the same company address and telephone numbers. Bear in mind that this means not just state licenses, but potentially also city licenses.
Visit the IRS web site and get an EIN for the small business. They’re free. Choose a business entity like corporation, LLC, etc. A business can begin as a sole proprietor but will most likely want to switch to a variety of corporation or partnership to limit risk and take full advantage of tax benefits.
A business entity will matter when it concerns tax obligations 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 are as a sole proprietor at the very least be sure to file for a DBA. If you do not, then your personal name is the same as the company name. Consequently, you can wind up being directly responsible for all company debts.
Additionally, per the IRS, using this arrangement there is a 1 in 7 possibility of an IRS audit. There is a 1 in 50 chance for corporations! Avoid confusion and noticeably lower the odds of an Internal Revenue Service audit as well.
Begin at the D&B web site and obtain a totally 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 websites 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 so, Experian and Equifax will have something to report on.
First you should 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 begin obtaining revolving store and cash credit.
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 generally Net 30, versus revolving.
So if you get an 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. In comparison 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 the proper way, you ought to get approval for vendor accounts that report to the business credit reporting bureaus. When 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 like 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.
But you may need to apply more than once to these vendors, and you may need to buy some items you do not really need, to validate you are responsible and will pay punctually. Consider donating nonessential items to charity.
Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, move onto revolving store credit. These are service providers which include Office Depot and Staples. These companies are more likely to have goods you need.
Use the company’s EIN on these credit applications.
Are there 8 to 10 accounts reporting? Then move to fleet credit. These are businesses like BP and Conoco. Use this credit to buy, fix, and maintain vehicles. Make sure to apply using the business’s EIN.
Have you been sensibly managing the credit you’ve gotten up to this point? Then move onto cash credit. These are businesses such as 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 often MasterCard credit cards. If you have 14 trade accounts reporting, then these are feasible.
Know what is happening with your credit. Make certain it is being reported and deal with any errors ASAP. Get in the habit of taking a look at credit reports and digging into the specifics, 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 mistakes or the information is incomplete.
So, what’s all this monitoring for? It’s to contest any errors in your records. Mistakes in your credit report(s) can be fixed. But the CRAs generally want you to dispute in a particular way.
Disputing credit report errors usually means you mail a paper letter with copies of any proofs of payment with it. These are documents like receipts and cancelled checks. Never send the originals. Always mail copies and keep the original copies.
Disputing credit report inaccuracies also means you specifically detail any charges you dispute. 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.
Always use credit responsibly! Never borrow beyond what you can pay off. Keep an eye on balances and deadlines for payments. Paying off punctually and fully will do more to boost business credit scores than nearly anything else.
Building business credit pays off. Excellent business credit scores help a small business get loans. Your lender knows the corporation can pay its financial obligations. They understand the business is for real. The business’s EIN attaches to high scores, and lenders won’t feel the need to request a personal guarantee.
Once you know what impacts your business credit scores, then you are that much nearer to establishing improved business credit. Learn more here and get easy ways to manage your business credit.