Published By Janet Gershen-Siegel at September 26, 2017
Learn how to make sure your business credit cards dont report on your consumer credit reports. It makes a difference!
Many small business credit cards require that the business owner to personally guarantee the debt. Usually this person is also the cardholder, although not all the time.
That means that if the balance is not paid off for the business, then the owner will end up being responsible for the entire amount. It also means that business account activity could potentially spill over to the owner’s personal credit reports.
But this depends upon each card issuer’s policy.
Some card issuers only report activity to the cardholder’s personal credit reports in the case of the owner defaulting. And there are others which will report all activity. And they will not distinguish between positive and negative activity.
The easiest way to keep business credit activity off your personal credit report is to use a business credit card which does not report business activity to personal credit bureaus. However, the decision to use a card such as this should not be made lightly.
Which is better? It all depends upon your situation. If you pay your business card on time and avoid high balances, then a ‘business’ card that appears on your personal credit reports with Experian, Equifax, and TransUnion should not be a problem.
It could even help your credit scores.
But if you charge everything you can on your card in order to rack up rewards, then your personal credit could conceivably suffer. Credit scoring models will take into consideration your debt usage or utilization ratio.
This compares the reported balances versus available credit limits. It is often for each card as well as all credit cards combined.
A high balance on a business card which appears on your personal credit can mean a higher debt usage ratio. And that can lower credit scores.
And paying the balance off in full every month alone is unlikely to solve this problem. The reported balance is often the balance as of the statement closing date and not after a payment has been made.
Therefore, if you want lower balances to get onto the reports, you need to make your payments before either the statement closing date, or whichever date the issuer reports.
However, if your personal credit history is lacking, a business card which reports your full account activity could help. Hence if you avoid credit cards and use a debit card, you may have a “thin” credit profile. It could benefit from the boost another card could provide.
Opting for a business credit card which does not report to personal credit may help if you know there will be times you need to run up charges putting you close to the limit or carry a balance.
This could be for anything from investing in new equipment to spending to prepare for a trade show. Of course you do not want that activity to bring down your scores.
Generally, it’s better to apply for the business credit card which offers rewards and benefits of the most interest to you, rather than focusing solely on the card’s reporting policy.
Furthermore, if you default, then having a business credit card which does not report regularly to consumer credit bureaus will make no difference. You will still end up personally liable for the debt on the card if you signed a personal guarantee.
A personal guarantee is a part of nearly all small business credit card agreements.
If the card issuer brings a lawsuit against you for the balance or sends the account to a collections agency, then this activity will likely show up on your personal credit report. That can happen regardless of how any other payment information is reported.
Another way out is to use a business credit card not requiring a personal guarantee. However, those are few and far between. These sorts of cards ask you, the business owner, to meet a set of conditions which can differ from one product to another.
These could be annual sales guarantees. Or they might be requirements to have an open Dun & Bradstreet file or other conditions. If you cannot meet these conditions, then this option will not exist for your business at all.
Finally, as always, it literally pays to separate your business life from your personal life, by opening separate accounts and even incorporating your business, in order to demonstrate to creditors that you and your company are not the same when it comes to credit.
So the truth is the best way to get around these problems is simply to build business credit! Don’t settle for credit cards that don’t do what you want. And don’t settle for credit cards that say ‘business’ on them, but are really personal credit cards in disguise.
You want it when business credit cards dont report on your consumer credit reports. And such cards would not be them.
Business credit is credit in a small business’s name. It doesn’t tie to an entrepreneur’s personal credit, not even when the owner is a sole proprietor and the only employee of the small business.
Because of this, an entrepreneur’s business and individual credit scores can be very different.
Given that small business credit is distinct from personal, it helps to safeguard a business owner’s personal assets, in case of litigation or business bankruptcy.
Also, with two distinct credit scores, a business owner can get two separate cards from the same merchant. This effectively doubles purchasing power.
Another advantage is that even startups can do this. Visiting a bank for a business loan can be a formula for disappointment. But building company credit, when done properly, is a plan for success.
Individual credit scores depend upon payments but also other elements like credit usage percentages.
But for small business credit, the scores actually merely hinge on if a company pays its invoices promptly.
Growing business credit is a process, and it does not occur automatically. A small business will need to actively work to build business credit.
That being said, it can be done readily and quickly, and it is much speedier than establishing personal credit scores.
Vendors are a big component of this process.
Carrying out the steps out of order will result in repetitive rejections. Nobody can start at the top with company 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 business needs to be bona fide to lending institutions and merchants.
As a result a company will need a professional-looking web site and e-mail address. And it needs to have website hosting bought from a merchant like GoDaddy.
In addition company telephone and fax numbers should have a listing on 411.com.
Likewise the company phone number should be toll-free (800 exchange or similar).
A company will also need a bank account dedicated solely to it, and it must have every one of the licenses necessary for running.
These licenses all must be in the perfect, accurate name of the business. And they need to have the same company address and telephone numbers.
So keep in mind that this means not just state licenses, but possibly also city licenses.
Visit the Internal Revenue Service website and acquire an EIN for the business. They’re free of charge. Choose a business entity such as corporation, LLC, etc.
A small business can get started as a sole proprietor. But they will probably want to change to a variety of corporation or partnership.
This is in order to decrease 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 litigation. A sole proprietorship means the owner is it when it comes to liability and tax obligations. Nobody else is responsible.
If you run 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 business name. Hence, you can end up being personally responsible for all company financial obligations.
Additionally, per the Internal Revenue Service, using this arrangement there is a 1 in 7 possibility of an IRS audit. There is a 1 in 50 chance for corporations! Steer clear of confusion and drastically decrease the odds of an Internal Revenue Service audit at the same time.
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 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 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 manner, Experian and Equifax will have something to report on.
First you should establish trade lines that report. This is also known 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 acquiring retail store and cash credit.
These kinds 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 usually Net 30, instead of revolving.
Therefore, if you get approval for $1,000 in vendor credit and use all of it, you must pay that money back in a set term, such as within 30 days on a Net 30 account.
Net 30 accounts need to be paid in full within 30 days. 60 accounts have 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 used.
To launch your business credit profile properly, you need to get approval for vendor accounts that report to the business credit reporting bureaus. When 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 in the same way true starter credit can. These are merchants that will grant an approval with marginal 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 have to apply more than once to these vendors, and you may need to buy some things you don’t need. So this is to verify you are reliable and will pay timely.
Consider donating nonessential items to charitable organizations.
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 first few orders might need to be paid in advance to initially get approval for Net 30 terms. Also, you may have to buy some items you don’t 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.
Oftentimes they’ll put you on a 90 day prepayment schedule. If you order items monthly for 3 months, they will ordinarily 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 almost 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 also be of some worth.
You can always ask non-reporting accounts for trade references. Additionally credit accounts of any sort ought to help you to better even out business expenditures, thereby making budgeting less complicated. 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 companies which include Office Depot and Staples. These companies are likelier to have supplies you need.
Use the company’s EIN on these credit applications.
One instance is Lowe’s. They report to D&B, Equifax and Business Experian. They want to see a D-U-N-S and a PAYDEX score of 78 or higher.
Are there 8 to 10 accounts reporting? Then progress to the fleet credit tier. These are service providers such as BP and Conoco. Use this credit to purchase, fix, and take care of vehicles. Make certain to apply using the business’s EIN.
One such example is Shell. They report to D&B and Business Experian. They need to see a PAYDEX Score of 78 or more and a 411 company phone listing.
Shell might claim they want a particular amount of time in business or profits. But if you already have adequate vendor accounts, that won’t be necessary. And you can still get an approval.
Have you been responsibly handling the credit you’ve gotten up to this point? Then move to the cash credit tier. These are service providers like 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. 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 company.
These are companies such as 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 feasible.
Know what is happening with your credit. Make certain it is being reported and fix any errors as soon as possible. Get in the practice 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 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 info if there are mistakes 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 inaccuracies in your records. Errors in your credit report(s) can be fixed. 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 send a paper letter with duplicates of any evidence of payment with it. These are documents like receipts and cancelled checks. Never send the originals. Always mail copies and keep the originals.
Fixing credit report inaccuracies also means you precisely spell out any charges you challenge. Make your dispute letter as crystal 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 instructions 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.
Always use credit smartly! Don’t borrow more than what you can pay off. Keep track of balances and deadlines for repayments. Paying in a timely manner and fully will do more to raise business credit scores than just about anything else.
Establishing business credit pays off. Great business credit scores help a company get loans. Your lending institution knows the business can pay its debts. They understand the small business is for real.
The business’s EIN connects to high scores and lenders won’t feel the need to demand a personal guarantee.
Business credit is an asset which can help your company for years to come. Learn more here and get started toward building small business credit.
Learn more here and get started toward getting the best business credit cards for you needs . And make sure your business credit cards dont report on your consumer credit reports.