Published By Janet Gershen-Siegel at January 29th, 2018
Do you know how to build company credit? We break down exactly what it takes to get your business the credit you need to grow.
You must recognize what affects your small business credit before you can make it better.
This is basically the length of time your business has been utilizing company credit. Naturally newer small businesses will have very short credit histories. Although there is not so much you can particularly do about that, do not worry.
Credit reporting agencies will also take a look at your personal credit score and your very own record of payments.
If your consumer credit is excellent, and especially if you have a reasonably lengthy credit history, then your individual credit can come to the rescue of your company. That is, you did not just get your very first credit card a short while ago.
Naturally the converse is also right. So if your private credit history is poor, then it will impact your company credit scores until your small business and individual credit can be separated.
Tardy payments will affect your business credit score for a good seven years. So pay your company (and personal) financial obligations off, as speedily as possible and as fully as possible. And then you can make a very real difference when it pertains to your credit scores.
Make sure to pay on schedule and you will reap the benefits of promptness.
Having a bad business year? Then it could wind up on your personal credit score. And in case your small business has not been around for too long, it will directly impact your company credit.
But you can separate both by taking measures to do just that. For example, you can get credit cards solely for your company, or you open business checking accounts and various other bank accounts (or perhaps get a business loan).
Then the credit reporting agencies will start to treat your private and company credit on an individual basis.
Also, make certain to incorporate, or at least file a DBA (doing business as) status. You can also pay for your company’s charges with your business credit card or checking account. And make sure it is the business’s full name on the bill and not yours.
Just like every company around, credit reporting bureaus like Equifax and Experian are only as good as their files. If your company’s name is like another’s, or your name is a lot like another business owner’s, there can possibly be some oversights.
So check those reports, and your small business report at Dun & Bradstreet, PAYDEX. Stay on top of these reports and challenge charges with documentation and clear-cut communications. Do not just allow them to stay wrong! You can repair this!
And while you’re at, it you should also be overseeing the credit reporting bureau which only handles individual and not company credit. And that is 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 business’s name. It doesn’t tie to a business owner’s personal credit, not even if the owner is a sole proprietor and the only employee of the business.
Thus, a business owner’s business and individual credit scores can be very different.
Due to the fact that company credit is separate from consumer, it helps to secure a business owner’s personal assets, in case of a lawsuit or business insolvency.
Also, with two separate credit scores, an entrepreneur can get two different cards from the same vendor. This effectively doubles purchasing power.
Another advantage is that even startup ventures can do this. Visiting a bank for a business loan can be a formula for frustration. But building business credit, when done right, is a plan for success.
Individual credit scores rely on payments but also other considerations like credit use percentages.
But for company credit, the scores truly just depend on if a business pays its debts on a timely basis.
Growing small business credit is a process, and it does not happen without effort. A small business will need to proactively work to establish small business credit.
However, it can be done easily and quickly, and it is much faster than establishing personal credit scores.
Merchants are a big part of this process.
Doing the steps out of sequence will cause repetitive rejections. Nobody can start at the top with company credit.
A small business has to be credible to credit issuers and vendors.
Hence a small business will need a professional-looking web site and email address. And it needs to have site hosting bought from a vendor such as GoDaddy.
And company phone numbers ought to have a listing on ListYourself.net.
Also the company telephone number should be toll-free (800 exchange or the equivalent).
A company will also need a bank account devoted solely to it, and it must have every one of the licenses necessary for operation.
These licenses all have to be in the correct, accurate name of the small business. And they must have the same small business address and telephone numbers.
So note that this means not just state licenses, but possibly also city licenses.
Visit the Internal Revenue Service web site and obtain an EIN for the small business. They’re free of charge. Select a business entity like corporation, LLC, etc.
A small business can start off as a sole proprietor. But they should change to a form of corporation or partnership.
This is in order to limit risk. And it will maximize tax benefits.
A business entity will matter when it comes to tax obligations and liability in case of litigation. A sole proprietorship means the business owner is it when it comes to liability and tax obligations. No one else is responsible.
Start at the D&B web site and get a 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 accuracy 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 credit. 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 getting more credit.
These sorts of accounts have the tendency to be for the things bought all the time, like 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 starter credit when you have none now. Terms are commonly Net 30, rather than revolving.
So 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, such as within 30 days on a Net 30 account.
Net 30 accounts have 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 have to pay back what you borrowed or the credit you made use of.
To begin your business credit profile the right way, you ought to get approval for vendor accounts that report to the business credit reporting agencies. As soon as that’s done, you can then make use of 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 merchants that will grant an approval with marginal effort. You also want them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.
You want 3 of these to move onto the next step.
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 value.
You can always ask non-reporting accounts for trade references. And credit accounts of any sort will help you to better even out business expenses, thereby making budgeting simpler. These are companies like PayPal Credit, T-Mobile, and Best Buy.
Know what is happening with your credit. Make certain it is being reported and address any inaccuracies ASAP. Get in the practice of checking credit reports. Dig into the specifics, not just the scores.
Update the data if there are inaccuracies or the info is incomplete.
So, what’s all this monitoring for? It’s to dispute any mistakes in your records.
Disputing credit report errors usually means you specifically itemize any charges you dispute.
Always use credit sensibly! Don’t borrow more than what you can pay back. Keep track of balances and deadlines for payments. Paying off in a timely manner and fully will do more to elevate business credit scores than almost anything else.
Establishing business credit pays. Good business credit scores help a small business get loans. Your loan provider knows the company can pay its financial obligations. They recognize the small business is bona fide.
The small business’s EIN links to high scores and lending institutions won’t feel the need to demand a personal guarantee.
Business credit is an asset which can help your company for many years to come. Learn more here and get started toward building company credit.
Once you understand what affects your business credit score, you are that much nearer to knowing how to build company credit. Discover this new way to build company credit.