As a parent, you want to do everything you can to help your child succeed. If they are running a business, you likely want to help them get funding. You probably realize that your help needs to go beyond simply providing funding yourself. Even if you can do that, you need to know how to help your children build business credit with EIN, apart from their social security number.
Dos and Don’ts When Trying to Help Your Children Build Business Credit with EIN
When you have a credit score for your business that is attached to your EIN rather than your SSN, you have access to much more business financing that you otherwise would. The thing is, a business credit score does not build passively like a personal credit score does. You have to intentionally work to establish and build a business credit profile. So, how can you as a parent help your children build business credit with EIN? Here are some dos and don’ts.
Don’t Pay for Tradelines
There are many companies online which promise to sell ‘seasoned’ tradelines. If a company has poor or little credit, you can pay several hundred or several thousand dollars and have your child’s business piggybacked onto the account of someone with established excellent credit. By doing this, new business owners can seem more creditworthy than they really are. Most consider this unethical. Do not help your child buy tradelines to establish or build a business credit score.
Don’t Try Piggybacking Your Own Credit
In this scenario, a creditworthy borrower’s accounts are used to improve the credit of an unrelated, or a related, third party, like a child. A creditworthy borrower adds the third party as an authorized user of his lines of credit. But he or she does not actually provide the third party with credit cards or account numbers to let the third party make charges against that account. As a result, the authorized user never actually uses the credit
The benefit to the third party is an improved credit rating . It ‘shows’ they are already approved for higher limit revolving accounts. In theory, showing you already have credit is supposed to make you more creditworthy for higher limit accounts.
Many companies claim to be able to secure $100,000 – 250,000 credit lines once these accounts are reporting. This is dishonest as well, even if it is your own accounts your child is piggybacking on, and even if you authorize it. It is viewed negatively by the Federal Reserve, the FBI, and credit companies.
Do Consider Signing as a Guarantor
A guarantor loan is a loan that you sign on to for someone else. You guarantee that you will repay if they default. Sometimes this is a better way to help a family member with funding than providing cash. Of course, if they fail to meet their business obligations, then you will bear the brunt of that – and lenders will likely come after you to make up for any losses they incur.
However, if they handle their obligations responsibility, this is a great way for someone to build a personal credit score. Even though business credit accounts do not affect personal credit, some business credit score calculations take personal credit score into account. So, this could also help strengthen the business credit sore of your child.
Do Consider the Credit Line Hybrid
This is a unique type of loan that you can help your child get by signing on as a guarantor. If you have a personal credit score of at least 700, you can help your child get the Credit Line Hybrid. They can usually get a loan of five times the amount of your highest revolving credit limit account, up to $150,000. Honestly, this is more than what you could get when applying for credit cards. Furthermore, you can get cash out on this program.
Here is the best part. There is no impact on your personal credit with this type of financing. All payments report to the business credit profile, so your child can build credit for their business associated with the business EIN without your personal credit being affected.
Do Consider Helping Pay for a Business Credit Expert
Now, here is the number one best way to help your children build business credit with EIN. Help them work with a business credit expert. There are very few things that are worth paying for when it comes to building credit, whether personal or business. This is one thing that is definitely worth it. Here is how a business credit expert can help your child.
Learn How to Establish Business Credit for the First Time
Remember we said you have to be intentional about building a business credit profile. It does not happen passively like with personal credit. A business credit expert can start this process. They can review how things look right now, and help your child navigate the process of setting up their business to be a fundable entity separate from them as the owner.
This is the first step in not only establishing a business credit score, but in building an overall foundation of fundaility.
Learn How to Earn Business Credit With EIN Number
Establishing a business credit profile is just the first step. Before you can build a business credit score, you have to have accounts reporting on-time payments. It sounds simple enough. However, not all business accounts report payments. In fact, very few do. Even worse, those that do report do not make that information common knowledge.
It is absolutely essential to work with a business credit expert to find an initial net 30 account to build business credit. This is the fast way to build credit for a business. If you try to do it alone, you could have a ton of accounts that are doing your business credit score no good, because they are not reporting. You will also waste time applying for accounts and getting denied.
A business credit expert knows not only which accounts report, but they can help you start with the ones that you actually qualify for and work up to the ones that take more time.
This alone saves an enormous amount of time, and time is money.
Helping Your Child Build Credit for Their Business is Likely a Different Process Than You Expect
While there is a right way to spend money to help your children build business credit with EIN, there is also a very wrong way. Never pay for tradelines, and avoid allowing your child to piggyback off your own credit. Both of these options are dishonest. They are viewed negatively by experts. Furthermore, they can only help with personal credit anyway. There really is not a way to do this to help with a business credit score.
Signing a loan as a guarantor is fine, but again, it really only helps with personal credit. While this can have bearing on a business credit score, the better way is to sign as a guarantor on the Credit Line Hybrid. Payments on this type of financing can directly impact the credit score of the business itself.
In the end, the number one best way to help your children build credit with EIN is to help them work with a business credit expert. This is someone who can not only help ensure their business is properly set up to build business credit, but that can also help them find accounts that report, and work on helping them build overall fundability. Get started now with a free consultation.