Published By Janet Gershen-Siegel at January 24, 2018
Do you know how to build credit for business? Establishing business credit means that your company obtains opportunities you never felt you would.
You can get cutting-edge equipment, bid on real estate, and cover the company payroll. And you can do so even when times are a bit lean. This is especially helpful in holiday business enterprises, where you can go for several months with merely low sales.
As a result of this, you ought to focus on building your company credit. Boost 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 entrepreneur wants that.
You must know what affects your small business credit before you can make it better.
This is in a nutshell the length of time your small business has been making use of company credit. Of course newer businesses will have brief credit histories. Although there is not a lot you can specifically do about that, do not panic.
Credit reporting agencies will also scrutinize your personal credit score and your personal background of payments.
If your own personal credit is excellent, and especially if you have a somewhat lengthy credit history, then your personal credit can come to the rescue of your business. That is, you did not just get your first credit card a short while ago.
Of course, the opposite is also right. So, if your individual credit history is poor, then it will have a bearing on your corporate credit scores until your business and individual credit can be split up.
Your credit utilization rate just shows the amount of money you have on credit. So, it is then divided by your overall available credit. Lenders generally speaking do not like to see this exceed 30%. Hence, for each $100 in credit, do not borrow on more than $30 of that.
If this percentage is rising, you’ll need to spend down. And repay your debts ahead of borrowing more.
Late monthly payments will affect your business credit score for a good seven years. If you pay your small business (and personal) debts off, as fast as possible and as completely as possible, guess what happens? You can make a very real difference when it relates to your credit scores.
See to it that to pay in a timely manner and you will reap the benefits of promptness.
A bad business year could end up on your personal credit score. And in case your small business has not been around for too long, it will directly have a bearing on your business credit. That being said, you can unlink both by taking steps to uncouple them.
Say, you can get credit cards just for your company, or you open business checking accounts and other bank accounts (or perhaps get a business loan). So, then the credit reporting agencies will start to address your consumer and corporate credit on an individual basis.
Also, make certain to incorporate, or at the very least file a DBA (doing business as) status.
You can also take care of your company’s bills with your small business credit card or checking account. And make sure it is the business’s full name on the bill and not yours.
Just the same as each and every company out there, credit reporting bureaus such as Equifax and Experian are only as good as their files. If your firm’s name resembles another’s, or your name is a lot like another entrepreneur’s, there can possibly be some mistakes.
So, check those reports, and your business report at Dun & Bradstreet, PAYDEX. Stay on top of these reports and contest charges with records and clear communications. Do not just let them stay incorrect! You can correct this!
And while you’re at, it you should also be monitoring the credit reporting bureau which just handles personal and not business credit. So that is TransUnion. If you do not know how to pull a credit report, do not worry. It’s easy.
Company credit is credit in a small business’s name. It doesn’t connect to an owner’s personal credit, not even if the owner is a sole proprietor and the solitary employee of the small business.
As such, a business owner’s business and consumer credit scores can be very different.
Due to the fact that business credit is independent from individual, it helps to safeguard an entrepreneur’s personal assets, in the event of litigation or business bankruptcy.
Also, with two separate credit scores, an entrepreneur can get two separate cards from the same vendor. This effectively doubles buying power.
Another benefit is that even startups can do this. Visiting a bank for a business loan can be a recipe for disappointment. But building business credit, when done right, is a plan for success.
Individual credit scores depend upon payments but also other factors like credit utilization percentages.
But for small business credit, the scores actually merely hinge on whether a company pays its invoices on time.
Learn more here and get started toward growing business credit.
Establishing business credit is a process, and it does not occur without effort. A company will need to actively work to establish small business credit.
That being said, it can be done readily and quickly, and it is much quicker than building personal credit scores.
Vendors are a big part of this process.
Carrying out the steps out of sequence will result in repetitive rejections. Nobody can start at the top with business credit. For example, you can’t start with store or cash credit from your bank. If you do you’ll get a rejection 100% of the time.
A small business needs to be genuine to credit issuers and vendors.
As a result, a company will need a professional-looking web site and e-mail address. And it needs to have site hosting from a merchant like GoDaddy.
Also, business phone and fax numbers ought to have a listing on 411.com.
Additionally, the company telephone number should be toll-free (800 exchange or the equivalent).
A business will also need a bank account devoted solely to it, and it has to have all of the licenses necessary for operation.
These licenses all must be in the specific, appropriate name of the business. And they need to have the same small business address and phone numbers.
So, bear in mind, that this means not just state licenses, but potentially also city licenses.
Learn more here and get started toward establishing business credit.
Visit the IRS web site and obtain an EIN for the company. They’re free of charge. Pick a business entity such as corporation, LLC, etc.
A business can begin as a sole proprietor. But they will most likely want to change to a form of corporation or partnership.
This is in order to minimize risk. And it will make best use of tax benefits.
A business entity will matter when it pertains to tax obligations and liability in case of a lawsuit. A sole proprietorship means the entrepreneur is it when it comes to liability and tax obligations. No one else is responsible.
If you operate a company 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. Consequently, you can find yourself being personally liable for all small business financial obligations.
Also, per the Internal Revenue Service, by having this structure there is a 1 in 7 probability of an IRS audit. There is a 1 in 50 chance for corporations! Steer clear of confusion and drastically reduce the odds of an Internal Revenue Service audit as well.
Start at the D&B website and obtain a totally free D-U-N-S number. A D-U-N-S number is how D&B gets a company into 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 websites 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.
In this way, Experian and Equifax will have activity to report on.
First you ought to build trade lines that report. This is also called 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 getting retail store and cash credit.
These kinds 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 to start with, 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.
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.
Learn more here and get started toward building company credit.
Net 30 accounts have to be paid in full within 30 days. 60 accounts have 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 used.
To start your business credit profile properly, you ought 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 merchants that will grant an approval with negligible 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 need to apply more than one time to these vendors, and you may need to buy some items you do not need. So, this is to validate you are responsible and will pay in a timely manner.
Consider giving unwanted things to charitable organizations.
Uline Shipping Supplies is a true starter vendor. You can find them online at www.uline.com. They sell shipping, packing, and industrial supplies, and they report to D&B.
You have to have a D-U-N-S number. They will request 2 references and a bank reference. The initial few orders may have to be paid in advance to first get approval for Net 30 terms. Also, you may need to buy some things you do not need.
Quill is an additional 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 developed.
Oftentimes they will put you on a 90-day prepayment schedule. If you order items monthly for 3 months, they will commonly approve you for a Net 30 Account.
Grainger Industrial Supply is also 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 to have a business license, EIN, and a D-U-N-S number.
For less than a $1000 credit limit they will approve virtually any person with a business license.
Non-Reporting Trade Accounts can also be helpful. While you do want trade accounts to report to at the very least one of the CRAs, a trade account which does not report can nonetheless be of some worth.
You can always ask non-reporting accounts for trade references. And also, credit accounts of any sort should help you to better even out business expenditures, consequently 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 progress to the retail credit tier. These are businesses like Office Depot and Staples. These companies are likelier to have items you need.
Use the small business’s EIN on these credit applications.
One good 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 more.
Are there 8 to 10 accounts reporting? Then move onto the fleet credit tier. These are companies such as BP and Conoco. Use this credit to buy, fix, and maintain vehicles. Make sure to apply using the company’s EIN.
One such example is Shell. They report to D&B and Business Experian. They want to see a PAYDEX Score of 78 or better and a 411 business phone listing.
Shell may say they want a certain amount of time in business or revenue. But if you already have sufficient vendor accounts, that won’t be necessary. And you can still get approval.
Learn more here and get started toward establishing company credit.
Have you been sensibly handling the credit you’ve up to this point? Then move to the cash credit tier. These are service providers such as Visa and MasterCard. Keep your SSN off these applications; use your EIN instead.
One such example is the Fuelman MasterCard. They report to D&B and Equifax Business. They want to see a PAYDEX Score of 78 or higher. 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).
In addition, they want you to have an established business.
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 feasible.
Know what is happening with your credit. Make certain it is being reported and fix any mistakes ASAP. Get in the habit of taking a look at credit reports and digging into the details, and not just the scores.
We can help you monitor business credit at Experian and D&B for 90% less than it would cost you at the CRAs. 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 details if there are inaccuracies or the relevant 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 dispute any mistakes in your records. Mistakes in your credit report(s) can be taken care of. But the CRAs often want you to dispute in a particular way.
Get your company’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 typically means you mail a paper letter with duplicates of any proofs of payment with it. These are documents like receipts and cancelled checks. Never send the original copies. Always mail copies and keep the originals.
Fixing credit report inaccuracies also means you specifically itemize any charges you contest. Make your dispute letter as clear as possible. Be specific about the issues with your report. Use certified mail so that you will have proof that you sent in your dispute.
Dispute your or your small business’s Equifax report by following the directions here: www.equifax.com/small-business-faqs/#Dispute-FAQs.
You can dispute mistakes on your or your company’s Experian report by following the directions 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 more than what you can pay off. Keep an eye on balances and deadlines for payments. Paying off promptly and completely will do more to increase business credit scores than virtually anything else.
Growing small business credit pays off. Great business credit scores help a small business get loans. Your lending institution knows the company can pay its debts. They recognize the small business is bona fide.
The small business’s EIN connects to high scores and lending institutions won’t feel the need to ask for a personal guarantee.
Business credit is an asset which can help your business for years to come.
Once you know what affects your business credit score, you are that much nearer to creating enhanced corporate credit. Learn more here and get started toward how to build credit for business.