Published By Janet Gershen-Siegel at December 30th, 2017
When you increase business credit scores, it means that your small business acquires chances you never felt you would. You can get cutting-edge equipment, bid on real property, and cover the company payroll. And you can do so even when times are a bit lean. This is particularly helpful in seasonal business enterprises, where you can go for several months with simply nominal sales.
Given this, you should really focus on developing your business credit. Improve and maintain your scores and you will have these possibilities. Do not, and either you do not get these opportunities, or they will cost you a lot more. And no company owner wants that. You should recognize what affects your small business credit before you can make it better.
This is basically how long your firm has been using company credit. Naturally newer companies will have very short credit histories. Though there is not too much you can particularly do about that, do not fret.
Credit reporting bureaus will also take a look at your personal credit score and your history of payments. If your own personal credit is good, and especially if you have a reasonably long credit history, then your personal credit can come to the rescue of your company. That is, you did not just get your very first credit card not too long ago.
Naturally the opposite is also right. So, if your private credit history is poor, then it will impact your company credit scores until your company and consumer credit can be split.
Your credit utilization rate just shows the amount of money you have on credit which is then divided by your overall available credit. Lenders ordinarily do not wish to see this go above 30%. So for each $100 in credit, do not borrow on over $30 of that.
If this percentage is rising, you’ll have to spend down. And repay your debts ahead of borrowing more.
Overdue monthly payments will affect your small business credit score for a good seven years. If you pay your business (and personal) debts off, as quickly as possible and as fully as possible, what happens? Then you can make a very real difference when it comes to your credit scores.
Be sure to pay punctually and you will enjoy the benefits of punctuality.
A dissatisfactory business year could end up on your personal credit score. And just in case your firm has not been in existence for too long, it will directly influence your company credit. Fortunately, you can separate them both by taking steps to uncouple them.
For example, you could get credit cards just for your firm, or you open up business checking accounts and other bank accounts (or perhaps get a business loan). And then the credit reporting agencies will begin to address your individual and corporate credit on an individual basis. Also, ensure to incorporate, or at the very least file a DBA (doing business as) status.
You can also pay for your company’s invoices with your firm credit card or checking account. And make sure it is the business’s full name on the bill and not your own.
Just the same as every entity around, credit reporting bureaus just like Equifax and Experian will be only as good as their information. If your company’s name is similar to another’s, or your name is a lot like another small business owner’s, there can potentially be some oversights. So keep an eye on those reports, and your company report at Dun & Bradstreet, PAYDEX.
Stay on top of these reports and dispute charges with documentation and transparent communications. Do not just allow them to stay incorrect! You can correct this!
And while you’re at, it you should also be checking the credit reporting agency which exclusively handles personal and not corporate credit. And that is TransUnion. If you do not know how you can pull a credit report, do not stress. It’s simple.
Business credit is credit in a company’s name. It doesn’t link to a business owner’s consumer credit, not even if the owner is a sole proprietor and the sole employee of the small business.
As such, an entrepreneur’s business and personal credit scores can be very different.
Since company credit is independent from individual, it helps to secure a small business owner’s personal assets, in case of litigation or business bankruptcy.
Also, with two distinct credit scores, an entrepreneur can get two different 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 formula for disappointment. But building small business credit, when done correctly, is a plan for success.
Consumer credit scores depend upon payments but also additional factors like credit use percentages.
But for small business credit, the scores actually only depend on if a company pays its invoices timely.
Establishing small business credit is a process, and it does not occur without effort. A company must actively work to establish business credit.
That being said, it can be done readily and quickly, and it is much more efficient than establishing personal credit scores.
Vendors are a big aspect of this process.
Accomplishing the steps out of sequence will cause repetitive rejections. Nobody can start at the top with small 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.
A small business needs to be genuine to loan providers and vendors.
For this reason, a business will need a professional-looking web site and email address. And it needs to have website hosting from a merchant such as GoDaddy.
And also, company phone and fax numbers need to have a listing on 411.com.
Likewise, the company phone number should be toll-free (800 exchange or the like).
A small business will also need a bank account dedicated purely to it, and it has to have all of the licenses essential for running.
These licenses all must be in the particular, correct name of the small business. And they need to have the same business address and phone numbers.
So keep in mind, 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 business. They’re totally free. Pick a business entity such as corporation, LLC, etc.
A business can get started as a sole proprietor. But they will most likely want to switch to a variety of corporation or partnership.
This is in order to lessen risk. And it will take full advantage of tax benefits.
A business entity will matter when it concerns taxes and liability in case of litigation. 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 business 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 small business name. Hence, you can wind up being personally liable for all small business debts.
Also, per the Internal Revenue Service, with this structure there is a 1 in 7 possibility of an IRS audit. There is a 1 in 50 probability for corporations! Avoid confusion and dramatically lower the odds of an IRS audit simultaneously.
Begin 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 small business 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 web sites for the business. You can do this at 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.
By doing so, Experian and Equifax will have something to report on.
First you must build trade lines that report. This is also referred to as 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 obtaining retail store and cash credit.
These types 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 first off, 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, instead of revolving.
Hence, 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, like within 30 days on a Net 30 account.
Net 30 accounts need to be paid in full within 30 days. 60 accounts need to be paid fully within 60 days. In contrast to 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 ought to get approval for vendor accounts that report to the business credit reporting bureaus. 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 in the same way true starter credit can. These are vendors that will grant an approval with hardly any effort. You also want 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 have to apply more than once to these vendors, and you may have to buy some items you don’t need. So, this is to verify you are trustworthy and will pay timely.
Consider donating unwanted items to charity.
Uline Shipping Supplies is a true starter vendor. You can find them online at www.uline.com. They offer 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 might have to be prepaid to initially get approval for Net 30 terms. Also, you may need to buy some items you do not need.
Quill is another 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 agencies, you get two credit experiences with them. Place an initial order first unless the D&B score is developed.
In most cases they will put you on a 90-day prepayment schedule. If you order items every month for 3 months, they will in most cases 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 under a $1000 credit limit they will approve almost anyone with a business license.
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 should help you to better even out business expenditures, thus making budgeting easier. These are companies 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 move to the retail credit tier. These are businesses such as Office Depot and Staples. These companies are likelier to have products you need.
Use the business’s EIN on these credit applications.
One 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 higher.
Are there 8 to 10 accounts reporting? Then move to the fleet credit tier. These are businesses such as BP and Conoco. Use this credit to buy, fix, and maintain vehicles. Make certain to apply using the small business’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 more and a 411 small business phone listing.
Shell may say they want a certain amount of time in business or revenue. But if you already have enough vendor accounts, that won’t be necessary. And you can still get approval.
Have you been sensibly managing the credit you’ve gotten up to this point? Then move to the cash credit tier. These are companies like 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 more. 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).
Additionally, they want you to have an established business.
These are companies like Walmart and Dell, and also Home Depot, BP, and Racetrac. These are usually MasterCard credit cards. If you have 14 trade accounts reporting, then these are feasible.
Know what is happening with your credit. Make sure it is being reported and deal with any errors ASAP. Get in the habit of taking a look at credit reports and digging into the specifics, and not just the scores.
We can help you monitor business credit at Experian and D&B for only $24/month. 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 relevant information if there are mistakes or the data 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 errors in your records. Errors in your credit report(s) can be taken care of. But the CRAs generally want you to dispute in a particular way.
Get your small 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 business credit report at: www.equifax.com/business/credit-information.
Disputing credit report errors generally means you mail a paper letter with duplicates of any proof of payment with it. These are documents like receipts and cancelled checks. Never send the originals. Always send copies and keep the originals.
Fixing credit report mistakes also means you precisely spell out any charges you contest. Make your dispute letter as clear 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.
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 errors 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 beyond what you can pay back. Keep track of balances and deadlines for payments. Paying off in a timely manner and in full will do more to increase business credit scores than nearly anything else.
Building company credit pays off. Good business credit scores help a company get loans. Your loan provider knows the company can pay its debts. They know the business is bona fide.
The company’s EIN connects to high scores and lending institutions won’t feel the need to call for 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 growing business credit.
Once you know what affects your company credit score, you are that much nearer to building improved corporate credit.