How to Establish a Business Credit Score

Your Question: What is a Good Business Credit Score?-Credit Score for Business-Factors that Can Devastate Your Business Credit Scores-How Do Business Credit Scores Work-How to Establish a Business Credit Score

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How to Establish a Business Credit Score

Published By Janet Gershen-Siegel at October 25, 2017

Your Question: What is a Good Business Credit Score?-Credit Score for Business-Factors that Can Devastate Your Business Credit Scores-How Do Business Credit Scores Work-How to Establish a Business Credit Score>

Here’s How to Establish a Business Credit Score

Developing business credit means that your company gets opportunities you never thought you would. You can get new equipment, bid on real estate, and deal with the company payroll, even when times are a bit lean. This is particularly valuable in seasonal operations, where you can go for months with only minimal sales. But your question may be about how to establish a business credit score. Read on!

Because of this, you should work on establishing your corporate credit. Enhance and maintain your scores and you will have these opportunities. Do not, and either you do not get these opportunities, or they will cost you a lot more. And no entrepreneur wants that. You need to know what influences your business credit before you can make it better.

Credit History Length Matters

This is generally how long your company has been making use of business credit. Of course newer businesses will have brief credit histories. Although there is not too much you can particularly do about that, do not panic.

Credit reporting agencies will also consider your personal credit score and your own history of payments. If your personal credit is good, and specifically if you have a fairly long credit history, then your personal credit can come to the rescue of your corporate. That is, you did not just get your first credit card not too long ago.

Of course the opposite is also true– if your personal credit history is bad, then it will impact your business credit scores until your business and personal credit can possibly be split.

Your Payment History Matters

Overdue payments will influence your business credit score for a good seven years. If you pay your business (and personal) debts off, as fast as feasible and as thoroughly as you can, then you can make a very real difference when it relates to your credit scores. Make certain to pay without delay and you will reap the rewards of promptness.

Your Personal Credit Can Impact Your Company Credit

Is your business having a not so great year? Then that could end up on your personal credit score. And in the event your business has not been around for too long, it will directly affect your commercial credit. However, you can delink both of them by taking steps to separate them.

For example, if you get credit cards just for your company, or you open up business checking accounts and other bank accounts (or even get a business loan), then the credit reporting bureaus will begin to treat your personal and corporate credit separately.

Also, make sure to incorporate, or at minimum register a DBA (doing business as) status. You can also pay for your company’s bills with your business credit card or checking account, and make sure it is the business’s name on the bill and not your own.

The Credit Reporting Bureaus Can Get it Wrong

Just the same as every entity out there, credit reporting agencies like Equifax and Experian are only as good as their data. If your company’s title resembles another’s, or your full name is a lot like another business owner’s, there can potentially be some mistakes. So monitor those reports, and your business report at Dun & Bradstreet, PAYDEX.

Stay on top of these reports and dispute charges with paperwork and clear communications. Do not just let them stay wrong! You can resolve this! And while you’re at, it you should also be keeping an eye on the credit reporting agency which only handles personal and not corporate credit, TransUnion. If you do not know the way to request a credit report, do not worry. It is simple– just use the above web links.

Do Not Let Your Credit Utilization Rate Harm Your Company

Credit utilization rate simply means the quantity of cash you have on credit. It is then divided by your total available credit. Lenders generally do not want to see this go above 30%. So for every $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 before borrowing more.

Here’s Specifically How to Establish a Business Credit Score

Any company can do this, even a startup. Here’s how to establish a business credit score.

Establishing company credit is a process, and it does not happen automatically. A business will need to proactively work to establish business credit. Nevertheless, it can be done readily and quickly, and it is much faster than developing consumer credit scores. Vendors are a big aspect of this process.

Accomplishing the steps out of order will cause repetitive denials. No one can start at the top with business credit. For instance, you can’t start with store or cash credit from your bank. If you do you’ll get a rejection 100% of the time.

Corporate Legitimacy

A small business must be genuine to loan providers and vendors. Due to this fact, a small business will need a professional-looking website and e-mail address, with website hosting from a supplier such as GoDaddy. And also company telephone and fax numbers must have a listing on 411.com.

In addition the business telephone number should be toll-free (800 exchange or the equivalent).

A company will also need a bank account devoted strictly to it, and it must have every one of the licenses necessary for operating. These licenses all have to be in the precise, correct name of the business, with the same corporate address and phone numbers. Keep in mind that this means not just state licenses, but potentially also city licenses.

Dealing with the IRS

Visit the IRS web site and acquire an EIN for the company. They’re free. Select a business entity such as corporation, LLC, etc. A business can start off as a sole proprietor but will most likely want to switch to a type of corporation or partnership to reduce risk and optimize tax benefits.

A business entity will matter when it concerns taxes and liability in case of a lawsuit. A sole proprietorship means the entrepreneur is it when it comes to liability and tax obligations. Nobody else is responsible.

If you are a sole proprietor you at least need to file a DBA. If you do not, then your personal name is the same as the small business name. As a result, you can wind up being directly liable for all small business debts.

In addition, per the Internal Revenue Service, by having this arrangement there is a 1 in 7 probability of an IRS audit. There is a 1 in 50 possibility for corporations! Steer clear of confusion and significantly reduce the chances of an IRS audit as well.

Setting off the Business Credit Reporting Process

Begin at the D&B website and obtain a cost-free DUNS number. A DUNS number is how D&B gets a company in their system, to produce a PAYDEX score. If there is no DUNS number, then there is no record and no PAYDEX score.

Once in D&B’s system, search Equifax and Experian’s sites for the small business. You can do this at https://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 activity to report on.

Trade Lines

First you must build trade lines that report. This is also known as vendor accounts. 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 revolving store and cash credit.

These sorts of accounts tend 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 creditors who will give you preliminary credit when you have none now. Terms are in most cases Net 30, rather than revolving.

Therefore, if you get 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.

Details

Net 30 accounts must be paid in full within 30 days. 60 accounts need to be paid completely within 60 days. Unlike with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you made use of.

To kick off your business credit profile properly, you need to get approval for vendor accounts that report to the business credit reporting bureaus. As soon as that’s done, you can then use 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 like true starter credit can. These are vendors that will grant an approval with very little effort. You also need them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.

But you may need to apply more than once to these vendors, and you may need to purchase some items you do not need to have, to verify you are reliable and will pay timely. Consider donating nonessential things to charitable organizations.

Revolving Store Credit

Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, progress to revolving store credit. These are businesses such as Office Depot and Staples. These companies are more likely to have items you need.

Use the business’s EIN on these credit applications.

One good example is Lowe’s. They report to D&B, Equifax and Business Experian. They want to see a DUNS and a PAYDEX score of 78 or more.

Fleet Credit

Are there 8 to 10 accounts reporting? Then move onto fleet credit. These are service providers such as BP and Conoco. Use this credit to purchase, 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 small business telephone listing. Shell might say they want a particular 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.

Cash Credit

Have you been sensibly handling the credit you’ve gotten up to this point? Then progress to cash credit. These are companies 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 higher; 10 trade lines reporting on your D&B report; and a $10,000 high credit limit reporting on D&B report (other account reporting). In addition they want you to have an established business.

These are companies like 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 in reach.

Monitor Your Business Credit

Know what is happening with your credit. Make sure it is being reported and address any inaccuracies ASAP. Get in the practice of checking 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 only $24/month. See: https://www.creditsuite.com/business-credit-monitoring. Update the relevant information if there are inaccuracies or the data is incomplete.

Challenging Errors

So, what’s all this monitoring for? It’s to contest any mistakes in your records. Errors in your credit report(s) can be taken care of. But the CRAs typically want you to dispute in a particular way.

Disputing credit report errors generally means you send a paper letter with duplicates of any evidence of payment with it. These are documents like receipts and cancelled checks. Never send the original copies. Always mail copies and retain the original copies.

Disputing credit report mistakes also means you specifically spell out any charges you contest. 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 sent in your dispute.

A Word About How to Establish a Business Credit Score

Always use credit sensibly! Never borrow more than what you can pay off. Monitor balances and deadlines for payments. Paying off in a timely manner and completely will do more to increase business credit scores than nearly anything else.

Building company credit pays. Excellent business credit scores help a small business get loans. Your lending institution knows the company can pay its financial obligations. They understand the corporation is authentic. The company’s EIN links to high scores and creditors won’t feel the need to request a personal guarantee.

Business credit is an asset which can help your small business for years to come.

Takeaways for How to Establish a Business Credit Score

Once you know what has a bearing on your small business credit score, you are that much nearer to building better corporate credit. 

Learn more here and get started with how to establish a business credit score.

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