Published By Janet Gershen-Siegel at August 18, 2018
Written by Janet Gershen-Siegel
Do you know how to keep your business credit score high? We do, so we’ve put together a half a dozen easy tips. Plus there’s also one very big bonus.
Overdue payments will have an effect on your small business credit score for a good seven years. If you pay your business debts off, as quickly and completely as possible, then you can make a very real difference when it relates to your credit scores.
Make certain to pay timely and you will experience the rewards of promptness.
This is how long your company has been working with company credit. Needless to say startup firms will have short credit histories, if they have any history at all. Though there is not so much you can specifically do about that, do not worry.
Credit reporting bureaus will also take a look at personal credit score and your history of payments. If your individual credit is good, and particularly if you have a lengthy credit history, then individual credit can come to the rescue of your company.
Naturally the opposite is also right. If your personal credit history is poor, then it will have a bearing on your business credit scores until your business and personal credit can be separated.
Your credit utilization rate starts with the amount of credit. It is then divided by total available credit. Lenders don’t like to see this exceed 30%. If this percentage is climbing, spend down and pay your debts before borrowing more.
Are you having an unsatisfactory business year? Then it could wind up on your personal credit score. And if your small business has not been in existence for too long, it will directly influence your business credit. Fortunately, you can help both by taking steps to unlink them.
For instance, get credit cards just for your business, or open up business checking accounts in your business’s EIN only. Then the credit reporting agencies will begin to treat your personal and corporate credit on an individual basis. Also, incorporate, or at least file a DBA.
You can also take care of your company’s monthly bills with your firm credit card or checking account. And make certain it is the business’s name on the bill and not your own.
Just like every entity around, credit reporting agencies like Equifax and Experian are only as good as their records. If your company’s name is similar to another’s, or your name is a lot like another entrepreneur’s, there could be some errors.
So keep an eye on those reports, and your business report at Dun & Bradstreet, PAYDEX. Stay on top of these reports and challenge charges with paperwork and crystal clear communications. Do not just allow them to stay wrong! You can fix this!
And while you’re at it, monitor the credit reporting bureau which solely handles individual and not business credit, TransUnion. If you do not know how you can pull a credit report, do not stress. It’s simple.
Yes, really! Take advantage of knowing when your creditors report and pay before then. Fast payments will raise your score and, at the same time, they tie right into #1. You’ll be taking care of both at the same time. And who in the business world doesn’t love a bargain like that?
But how do you increase your business credit scores in the first place? You do so by building business credit. So here’s how.
Growing small business credit is a process, and it does not happen without effort. A company has to proactively work to build corporate credit. That being said, it can be accomplished readily and quickly, and it is much speedier than developing individual credit scores. Merchants are a big part of this process.
Accomplishing the steps out of sequence will cause repetitive denials. Nobody can start at the top with business credit. For example, you can’t start with store or cash credit from your bank. If you do you’ll get a denial 100% of the time.
A company needs to be legit to loan providers and vendors. Therefore, a business will need a professional-looking website and e-mail address, with site hosting bought from a supplier like GoDaddy. In addition business telephone and fax numbers should have a listing on 411.com.
In addition the business telephone number should be toll-free (800 exchange or similar).
A company will also need a bank account devoted purely to it, and it has to have every one of the licenses essential for operating. These licenses all have to be in the exact, appropriate name of the business, with the same business address and telephone numbers. Keep in mind that this means not just state licenses, but potentially also city licenses.
Visit the IRS web site and get an EIN for the business. They’re free of charge. Pick a business entity like corporation, LLC, etc. A company can begin as a sole proprietor but will most likely wish to switch to a variety of corporation or partnership to reduce risk and make best use of tax benefits.
A business entity will matter when it comes to tax obligations and liability in case of a litigation. A sole proprietorship means the business owner is it when it comes to liability and tax obligations. No one else is responsible.
If you are a sole proprietor, then at the very least you need to file for a DBA (‘doing business as’) status. If you do not, then your personal name is the same as the corporate name. Because of this, you can end up being directly liable for all corporate debts.
Also, according to the Internal Revenue Service, by having this arrangement there is a 1 in 7 chance of an IRS audit. There is a 1 in 50 chance for corporations! Avoid confusion and substantially lower the odds of an IRS audit simultaneously.
Start at the D&B web site and get a free DUNS number. A DUNS number is how D&B gets a business into 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 web sites for the corporation. You can do this at https://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. By doing this, Experian and Equifax will have something to report on.
First you should build trade lines that report. This is also referred to 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 start obtaining 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 first off, 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, versus 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, like within 30 days on a Net 30 account.
Net 30 accounts have to be paid in full within 30 days. 60 accounts need to be paid in full within 60 days. Compared 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 the right way, you should get approval for vendor accounts that report to the business credit reporting agencies. 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 merchants 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 one time to these vendors, and you may have to buy some things you do not really need, to validate you are dependable and will pay punctually. Consider giving nonessential things to charity.
Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, move to revolving store credit. These are businesses like Office Depot and Staples. These companies are likelier to have goods you need.
Use the company’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 higher.
Are there 8 to 10 accounts reporting? Then move to fleet credit. These are businesses such as BP and Conoco. Use this credit to buy, repair, 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 need to see a PAYDEX Score of 78 or more and a 411 company phone listing. Shell may claim they want a particular amount of time in business or profits. But if you already have enough vendor accounts, that won’t be necessary and you can still get approval.
Have you been sensibly handling the credit you’ve gotten up to this point? Then progress to cash credit. These are businesses 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). 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 in reach.
Know what is happening to keep your business credit score high. Make certain it is being reported and fix any errors ASAP. Get in the practice 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: https://www.creditsuite.com/business-credit-monitoring. Update the info if there are errors or the information is incomplete.
So, what’s all this monitoring for? It’s to challenge any problems in your records. Mistakes in your credit report(s) can be corrected. But the CRAs normally want you to dispute in a particular way.
Disputing credit report inaccuracies typically means you mail 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 send copies and keep the original copies.
Disputing credit report errors also means you precisely spell out any charges you contest. 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 mailed in your dispute.
Always use credit smartly! Don’t borrow more than what you can pay off. Track balances and deadlines for payments. Paying on time and in full will do more to boost business credit scores than nearly anything else.
Establishing company credit pays off. Good business credit scores help a business get loans. Your creditor knows the corporation can pay its debts. They know the small business is for real. The corporation’s EIN links to high scores, and creditors 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.
Once you learn what goes into your business credit scores, you are that much closer to being able to keep your business credit score high. Learn more here and get started and keep your business credit score high, and attached to your company’s EIN and not your SSN.