Published By Janet Gershen-Siegel at October 15th, 2017
You can easily and quickly build your business credit. Here’s how.
Company credit is credit in a company’s name. It doesn’t tie to a business owner’s individual 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. Here’s how you can quickly build your business credit.
Since business credit is distinct from consumer, it helps to protect a small business owner’s personal assets, in the event of legal action or business insolvency.
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 start-ups can do this. Going to a bank for a business loan can be a formula for frustration. But building company credit, when done right, is a plan for success.
Consumer credit scores depend on payments but also additional components like credit usage percentages.
But for small business credit, the scores really just depend on if a company pays its bills on time.
Building company credit is a process, and it does not happen automatically. A company has to actively work to build small business credit.
Having said that, it can be done readily and quickly, and it is much speedier than establishing individual credit scores.
Vendors are a big part of this process.
Undertaking the steps out of sequence will result in repetitive rejections. No one can start at the top with small business credit.
A small business has to be fundable to lenders and merchants.
Therefore, a small business will need a professional-looking website and e-mail address. And it needs to have website hosting bought from a company such as GoDaddy.
And, business phone numbers need to have a listing on ListYourself.net.
Likewise, the business phone number should be toll-free (800 exchange or similar).
A company will also need a bank account dedicated strictly to it, and it has to have all of the licenses essential for operation.
These licenses all have to be in the exact, correct name of the business. And they must have the same small business address and phone numbers.
So note, that this means not just state licenses, but possibly also city licenses.
Visit the IRS website and acquire an EIN for the small business. They’re free of charge. Choose a business entity such as corporation, LLC, etc.
A business can start off as a sole proprietor. But they should change to a form of corporation or an LLC.
This is in order to minimize risk. And it will maximize tax benefits.
A business entity will matter when it concerns tax obligations and liability in the event of litigation. A sole proprietorship means the business owner is it when it comes to liability and taxes. No one else is responsible.
If you run a company as a sole proprietor, then at the very 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 business name. Consequently, you can end up being personally responsible for all company financial obligations.
But only look at any DBA filing as a steppingstone to incorporating.
Start at the D&B website and get a free D-U-N-S number. A D-U-N-S number is how D&B gets a small business in their system, to generate 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 business. 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 need to build trade lines that report. This is also referred to 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 to get more credit.
These kinds of accounts have the tendency to be for the things bought all the time, like marketing materials, shipping boxes, and office furniture.
But to start with, what is trade credit? These trade lines are credit issuers who will give you preliminary credit when you have none now. Terms are frequently Net 30, rather than revolving.
Hence, 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, like within 30 days on a Net 30 account.
Net 30 accounts must be paid in full within 30 days. 60 accounts must 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 kick off your business credit profile properly, you need to get approval for vendor accounts that report to the business credit reporting agencies. When that’s done, you can then use the credit.
Not every vendor can help like 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 3 of these to move onto the next step. Here are some stellar choices from us: https://www.creditsuite.com/blog/5-vendor-accounts-that-build-your-business-credit/
Know what is happening with your credit. Make sure it is being reported and deal with any errors as soon as possible. Get in the habit of checking credit reports. Dig into the particulars, not just the scores.
We can help you monitor business credit at Experian, Equifax, and D&B for 90% less.
Update the information if there are inaccuracies or the info is incomplete.
So, what’s all this monitoring for? It’s to contest any mistakes in your records. Mistakes in your credit report(s) can be corrected. But the CRAs usually want you to dispute in a particular way.
Disputing credit report errors typically means you precisely itemize any charges you dispute.
Always use credit smartly! Never borrow more than what you can pay off. Track balances and deadlines for payments. Paying off on time and fully will do more to increase business credit scores than almost anything else.
Growing business credit pays off. Good business credit scores help a small business get loans. Your lender knows the small business can pay its financial obligations. They understand the business is bona fide.
The small business’s EIN connects to high scores and loan providers won’t feel the need to demand a personal guarantee.
Business credit is an asset which can help your small business for years to come. Learn more here and get started toward building company credit.