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How to Establish Corporate Credit as a Startup Business

Published By Janet Gershen-Siegel at October 8th, 2017

Do you recognize how to establish corporate credit as a startup or any stage business? As a brand-new company, by definition, you have no or little commercial credit history, so it can be hard. When you ask: What is the credit score of a new company? The answer is– it’s usually not so great. But don’t worry! Here are some ideas which will work.

Every Entrepreneur Needs to Know How to Establish Corporate Credit

Corporate credit is credit in a corporation’s name. It doesn’t attach to an owner’s individual credit, not even when the owner is a sole proprietor and the sole employee of the corporation. 

As a result, a business owner’s business and consumer credit scores can be very different.

The Advantages When You Establish Corporate Credit

Because corporate credit is distinct from personal, it helps to secure an entrepreneur’s personal assets, in case of litigation or corporate insolvency.

Also, with two separate credit scores, a business owner can get two different cards from the same merchant. This effectively doubles purchasing power.

Another benefit is that even startups can do this. Heading to a bank for a business loan can be a recipe for frustration. But to establish corporate credit, when done right, is a plan for success.

Personal credit scores depend on payments but also other elements like credit usage percentages. 

But for corporate credit, the scores truly only hinge on if a company pays its bills in a timely manner.

The Process

It’s a process  to establish corporate credit. It does not occur automatically. An entrepreneur must actively work to establish corporate credit as a startup business or at any stage.

Having said that, it can be done easily and quickly, and it is much more rapid than establishing consumer credit scores. 

Merchants are a big component of this process.

Doing the steps out of sequence results in repetitive denials. Nobody can start at the top with corporate credit. For instance, you can’t start with retail or cash credit from your bank. If you do, you’ll get a rejection 100% of the time.

Corporate Fundability

A corporation must be fundable to credit issuers and vendors. 

Hence, a corporation needs a professional-looking web site and e-mail address. And it needs to have website hosting bought from a merchant such as GoDaddy. 

Also, company phone and fax numbers should have a listing on 411. You can do that here: http://www.listyourself.net

Likewise, the company telephone number should be toll-free (800 exchange or the like).

A corporation also needs a bank account devoted only to it, and it needs to have all of the licenses necessary for operating. 

Licenses

These licenses all have to be in the identical, accurate name of the corporation. And they need to have the same company address and telephone numbers. 

So note, that this means not just state licenses, but possibly also city licenses.

establish corporate credit3 - How to Establish Corporate Credit as a Startup Business

Learn more here and get started with how to establish corporate credit.

Working with the Internal Revenue Service

Visit the IRS website and get an EIN for the business. They’re free. Choose the type of corporation which works best, i.e. LLC, C-corp, or S-corp. 

A corporate business entity is best to limit risk. And it will make best use of tax benefits.

A business entity matters when it involves tax obligations and liability in case of litigation.

Establish Corporate Credit and Start the Reporting Process

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 any 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 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. 

This way, Experian and Equifax have something to report on.

Vendor Credit Tier

First you should establish 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 corporate credit score. 

And with an established corporate credit profile and score you can begin to acquire credit in the retail and cash credit tiers.

These sorts of accounts often tend to be for the things bought all the time, like marketing materials, shipping boxes, outdoor work wear, ink and toner, and office furniture.

But first of all, what is trade credit? These trade lines are credit issuers who give you starter credit when you have none now. Terms are often Net 30, versus revolving. 

Hence, 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, such as within 30 days on a Net 30 account.

Details

Net 30 accounts need to be paid in full within 30 days. 60 accounts need to be paid fully within 60 days. Compared to with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you used. 

To begin your corporate 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 pay back what you used, and the account is on report to Dun & Bradstreet, Experian, or Equifax.

Vendor Credit Tier – It Helps

Not every vendor can help in the same way true starter credit can. These are merchants that grant an approval with nominal 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, which is the retail credit tier. Here are some stellar choices from us: https://www.creditsuite.com/blog/5-vendor-accounts-that-build-your-business-credit/ 

Accounts That Don’t Report

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. Also credit accounts of any sort ought to help you to better even out business expenditures, consequently making budgeting simpler. These are providers like PayPal Credit, T-Mobile, and Best Buy.

Retail Credit Tier

Once there are 3 or more vendor trade accounts reporting to at least one of the CRAs, then move onto the retail credit tier. These are companies like Office Depot and Staples. 

Just use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, use the business’s EIN on these credit applications.

Fleet Credit Tier

Are there more accounts reporting? Then progress to the fleet credit tier. These are businesses such as BP and Conoco. Use this credit to buy fuel, and to repair and take care of vehicles. Only use your SSN and date of birth on these applications for verification purposes. For credit checks and guarantees, make certain to apply using the company’s EIN.

establish corporate credit3 - How to Establish Corporate Credit as a Startup Business

Learn more here and get started with how to establish corporate credit.

Cash Credit Tier

Have you been responsibly handling the credit you’ve up to this point? Then move to the cash credit tier. These are businesses such as Visa and MasterCard. Just use your SSN and date of birth on these applications for verification purposes. For credit checks and guarantees, use your EIN instead.

These are usually MasterCard credit cards. If you have more trade accounts reporting, then these are in reach.

establish corporate credit3 - How to Establish Corporate Credit as a Startup Business

Learn more here and get started with how to establish corporate credit.

Monitor Your Corporate Credit

Know what is happening with your credit. Make certain it is being reported and address any errors as soon as possible. Get in the habit of taking a look at credit reports. Dig into the particulars, not just the scores.

We can help you monitor corporate credit at Experian and D&B for 90% less than it would cost you at the CRAs.

At Equifax, you can monitor your account at: www.equifax.com/business/business-credit-monitor-small-business.

Update Your Record

Update the details if there are mistakes or the details 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. So for Equifax, go here: www.equifax.com/business/small-business.

Fix Your Corporate Credit

So, what’s all this monitoring for? It’s to challenge any problems in your records. Errors in your credit report(s) can be taken care of. But the CRAs normally 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 corporate credit report at: www.equifax.com/business/credit-information.

Disputes

Disputing credit report mistakes typically means you send 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 send copies and keep the originals.

Fixing credit report errors also means you specifically detail any charges you dispute. Make your dispute letter as understandable as possible. Be specific about the problems with your report. Use certified mail to have proof that you sent in your dispute.

Dispute your or your company’s Equifax report by following the instructions here: www.equifax.com/small-business-faqs/#Dispute-FAQs

You can dispute inaccuracies on your or your business’s Experian report by following the directions here: www.experian.com/small-business/business-credit-information.jsp

And D&B’s PAYDEX Customer Service telephone number is here: www.dandb.com/glossary/paydex.

A Word about How to Establish Corporate Credit

Always use credit sensibly! Never borrow beyond what you can pay off. Keep an eye on balances and deadlines for payments. Paying on schedule and fully does more to boost corporate credit scores than just about anything else.

Growing corporate credit pays. Good corporate credit scores help you get loans. Your lender knows the company can pay its financial obligations. They understand the corporation is authentic. 

The corporate EIN attaches to high scores and lending institutions won’t feel the need to require a personal guarantee.

Takeaways for How to Establish Corporate Credit

Corporate credit is an asset which can help your corporation for many years to come.

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