Published By Janet Gershen-Siegel at January 20th, 2018
When you build business credit, it means your business gets opportunities you never felt you would. It can be the difference between success and failure!
You can get all-new equipment, bid on buildings, and cover the company payroll, even when times are a bit lean. This is especially helpful in holiday firms, where you can go for several months with simply hardly any sales.
Due to this, you ought to focus on building your business credit. Enhance and maintain your scores and you will have these chances. Do not, and either you do not get these chances, or they will cost you a lot more. And no small business owner wants that.
You need to understand what affects your business credit before you can make it better.
This is essentially the length of time your firm has been working with business credit. Of course newer firms will have short credit histories. Although there is not so much you can particularly do about that, do not panic.
Credit reporting bureaus will also investigate your personal credit score and your personal history of payments. If your personal credit is good, and particularly if you have a relatively lengthy credit history, then your personal credit can come to the rescue of your company.
That is, you did not just get your very first credit card not too long ago.
Normally the opposite is also right. So if your individual credit history is poor, then it will have a bearing on your business credit scores until your small business and individual credit can be separated.
Your credit utilization rate just means the amount of money you have on credit. So it is then divided by your total available credit. Lenders in general do not like to see this exceed 30%. So for each $100 in credit, do not borrow on more than $30 of that.
If this percent is increasing, you’ll have to spend down and pay off your debts before borrowing more.
Overdue payments will impact your small business credit score for a good seven years. If you pay your company (and personal) debts off, as fast as possible and as fully as possible, then you can make a very real difference when it comes to your credit scores.
Make certain to pay punctually. And you will experience the benefits of punctuality.
A substandard business year could end up on your consumer credit score. And just in case your company has not been in existence for too long, it will directly influence your business credit.
But you can separate them both by taking steps to split up them. You can get credit cards exclusively for your firm. Or you can open business checking accounts and various other bank accounts. Or maybe get a business loan.
Then the credit reporting agencies will start to treat your consumer and company credit independently. Also, be sure to incorporate, or at the very least file a DBA (doing business as) status. You can also pay for your company’s expenses with your small business credit card or checking account. And make sure it is the small business’s full name on the bill and not your own.
Just the same as every entity out there, credit reporting bureaus just like Equifax and Experian are only as good as their files. If your company’s name is similar to another’s, or your 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 question charges with documentation and transparent communications. Do not just let them stay wrong! You can correct this!
And while you’re at, it you should also be checking the credit reporting agency which exclusively handles personal and not small business credit, TransUnion. If you do not know the way to pull a credit report, do not worry. It’s easy.
Company credit is credit in a small business’s name. It doesn’t link to an owner’s personal credit, not even if the owner is a sole proprietor and the solitary employee of the business.
Accordingly, a business owner’s business and consumer credit scores can be very different.
Due to the fact that business credit is distinct from personal, it helps to protect an entrepreneur’s personal assets, in case of court action or business insolvency.
Also, with two separate credit scores, an entrepreneur can get two separate cards from the same merchant. This effectively doubles buying power.
Another advantage is that even start-ups can do this. Visiting a bank for a business loan can be a formula for frustration. But building business credit, when done the right way, is a plan for success.
Individual credit scores depend upon payments but also additional components like credit utilization percentages.
But for company credit, the scores actually only depend on if a company pays its invoices on a timely basis.
Growing small business credit is a process, and it does not happen without effort. A company must proactively work to establish company credit.
Nevertheless, it can be done easily and quickly, and it is much more rapid than developing personal credit scores.
Vendors are a big component of this process.
Doing the steps out of sequence will cause repetitive denials. Nobody can start at the top with small 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 small business needs to be reliable to loan providers and merchants.
Consequently, a small business will need a professional-looking website and e-mail address. And it needs to have site hosting bought from a company such as GoDaddy.
And business phone and fax numbers ought to have a listing on 411.com.
At the same time the business telephone number should be toll-free (800 exchange or comparable).
A business will also need a bank account dedicated strictly to it, and it must have all of the licenses essential for operating.
These licenses all have to be in the identical, correct name of the company. And they must have the same company address and telephone numbers.
So bear in mind that this means not just state licenses, but possibly also city licenses.
Visit the Internal Revenue Service website and acquire an EIN for the company. They’re totally free. Choose a business entity like corporation, LLC, etc.
A small business can start off as a sole proprietor. But they will more than likely wish to change to a type of corporation or partnership.
This is in order to reduce risk. And it will make best use of tax benefits.
A business entity will matter when it concerns tax obligations and liability in the event of a lawsuit. A sole proprietorship means the entrepreneur is it when it comes to liability and taxes. Nobody else is responsible.
If you run a small business as a sole proprietor, then at 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 company name. Because of this, you can find yourself being personally liable for all small business financial obligations.
Additionally, according to the Internal Revenue Service, by having this structure there is a 1 in 7 chance of an IRS audit. There is a 1 in 50 probability for corporations! Prevent confusion and significantly decrease the odds of an IRS audit as well.
Begin at the D&B website and obtain a cost-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 company. 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.
This way, Experian and Equifax will have something to report on.
First you need to build trade lines that report. This is also referred to as 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 begin acquiring retail store 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 off, what is trade credit? These trade lines are credit issuers who will give you starter credit when you have none now. Terms are ordinarily Net 30, instead of revolving.
Hence 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, such as within 30 days on a Net 30 account.
Net 30 accounts need to be paid in full within 30 days. 60 accounts need to be paid fully within 60 days. Unlike with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you used.
To launch your business credit profile properly, you need to get approval for vendor accounts that report to the business credit reporting bureaus. When that’s done, you can then make use of 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 in the same way true starter credit can. These are vendors that will grant an approval with a minimum of 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, and you may have to buy some items you do not need. So this is to confirm you are trustworthy and will pay promptly.
Consider giving unwanted things to charity.
Uline Shipping Supplies is a true starter vendor. You can find them online at www.uline.com. They offer shipping, packing, and industrial supplies, and they report to D&B.
You need to have a D-U-N-S number. They will ask for 2 references and a bank reference. The initial few orders might need to be prepaid to first get approval for Net 30 terms. Also, you may need to purchase some things you don’t need.
Quill is another true starter vendor. You can find them online at www.quill.com. They sell office, packaging, and cleaning supplies, and they report to D&B and Experian.
Because Quill reports to two separate credit reporting bureaus, you get two credit experiences with them. Place an initial order first unless the D&B score is established.
Normally they’ll put you on a 90 day prepayment schedule. If you order items each month for 3 months, they will ordinarily approve you for a Net 30 Account.
Grainger Industrial Supply is likewise a true starter vendor. You can find them online at www.grainger.com. They sell safety equipment, plumbing supplies, and more, and they report to D&B. You will need a business license, EIN, and a D-U-N-S number.
For under a $1000 credit limit they will approve virtually anybody with a business license.
Non-Reporting Trade Accounts can also be helpful. While you do want trade accounts to report to a minimum of one of the CRAs, a trade account which does not report can still be of some worth.
You can always ask non-reporting accounts for trade references. Additionally credit accounts of any sort ought to help you to better even out business expenditures, thereby making financial planning easier. These are providers like PayPal Credit, T-Mobile, and Best Buy.
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 service providers such as Office Depot and Staples. These companies are likelier to have things you need.
Use the company’s EIN on these credit applications.
One 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 better.
Are there 8 to 10 accounts reporting? Then move to the fleet credit tier. These are companies such as BP and Conoco. Use this credit to purchase, repair, and maintain vehicles. Make certain to apply using the small 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 more and a 411 company phone listing.
Shell may claim they want a particular amount of time in business or revenue. But if you already have enough vendor accounts, that won’t be necessary. And you can still get approval.
Have you been responsibly handling the credit you’ve up to this point? Then move onto the cash credit tier. These are service providers such as 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 want to see a PAYDEX Score of 78 or more. 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).
Additionally they want you to have an established company.
These are companies such as Walmart and Dell, and also Home Depot, BP, and Racetrac. These are frequently MasterCard credit cards. If you have 14 trade accounts reporting, then these are feasible.
Know what is happening with your credit. Make sure it is being reported and fix any inaccuracies ASAP. Get in the practice of taking a look at 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: www.creditsuite.com/business-credit-monitoring.
At D&B you can monitor at: www.dandb.com/credit-builder/. At Experian, you can monitor your account at: www.smartbusinessreports.com/Landing/1217/. And at Equifax, you can monitor your account at: www.equifax.com/business/business-credit-monitor-small-business. Experian and Equifax cost about $19.99; D&B ranges from $49.99 to $99.99.
Update the info if there are mistakes or the information is incomplete. At D&B, you can do this at: https://iupdate.dnb.com/iUpdate/viewiUpdateHome.htm. For
Experian, go here: www.experian.com/small-business/business-credit-information.jsp. And for Equifax, go here: www.equifax.com/business/small-business.
So, what’s all this monitoring for? It’s to challenge any mistakes in your records. Errors in your credit report(s) can be corrected. But the CRAs typically want you to dispute in a particular way.
Get your business’s PAYDEX report at: www.dnb.com/about-us/our-data.html. Get your company’s Experian report at: www.businesscreditfacts.com/pdp.aspx?pg=SearchForm. And get your Equifax business credit report at: www.equifax.com/business/credit-information.
Disputing credit report errors normally means you send a paper letter with duplicates of any proofs 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.
Fixing credit report mistakes also means you specifically spell out any charges you challenge. Make your dispute letter as understandable 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.
Dispute your or your company’s Equifax report by following the directions here: www.equifax.com/small-business-faqs/#Dispute-FAQs.
You can dispute mistakes on your or your small business’s Experian report by following the instructions here: www.experian.com/small-business/business-credit-information.jsp.
And D&B’s PAYDEX Customer Service contact number is here: www.dandb.com/glossary/paydex.
Always use credit smartly! Don’t borrow beyond what you can pay off. Keep an eye on balances and deadlines for payments. Paying off in a timely manner and completely will do more to elevate business credit scores than nearly anything else.
Growing business credit pays off. Good business credit scores help a company get loans. Your lending institution knows the small business can pay its financial obligations. They understand the small business is for real.
The company’s EIN links to high scores and lending institutions won’t feel the need to request a personal guarantee.
Business credit is an asset which can help your company for years to come.
Once you find out what influences your business credit score, you are that much closer to creating better business credit. Learn more here and get started toward building business credit.