Secrets Revealed: Taking the Mystery out of Building Business Credit Programs

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Secrets Revealed: Taking the Mystery out of Building Business Credit Programs

Published By Janet Gershen-Siegel at December 18, 2017

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Building Business Credit Programs Unsealed and Revealed

We know that building business credit programs can sometimes feel like a mystery. But it doesn’t have to be that way.

Building business credit means that your firm gets opportunities you never felt that you would. You can get brand new equipment, bid on realty, and deal with the company payroll, even when times are a bit lean.

This is specifically helpful in holiday companies, where you can go for months with simply low sales.

Given this, you really should tackle building your company credit. Enhance and maintain your scores and you will have these opportunities. Do not, and either you do not get these chances, or they will cost you a lot more. And no entrepreneur wants that.

You should know what affects your company credit before you can make it better.

Building Business Credit Programs: Credit History Length Matters

This is in essence how long your company has been making use of company credit. Certainly newer companies will have brief credit histories. Although there is not a lot you can specifically do about that, do not worry. Credit reporting agencies will also scrutinize your personal credit score and your very own record of payments.

If your individual credit is excellent, and particularly if you have a fairly lengthy credit history, then your personal credit can come to the rescue of your business. That is, you did not just get your very first credit card a short while ago.

Normally the reverse is also right. So if your private credit history is poor, then it will impact your business credit scores until your small business and individual credit can be split.

Building Business Credit Programs: Do not Permit Your Credit Utilization Rate to Harm Your Small business

Your credit utilization rate just means the amount of cash you have on credit. So it is then divided by your total available credit. Lenders usually do not like to see this go above 30%. Hence for every $100 in credit, do not borrow on over $30 of that.

If this percent is increasing, you’ll need to spend down. And repay your financial debts ahead of borrowing more.

Building Business Credit Programs: Your Payment History is Important

Overdue repayments will have an effect on your company credit score for a good seven years. If you pay your small business (and personal) debts off, as quickly as possible and as fully as possible, that matters. You can make a very real difference when it comes to your credit scores.

Ensure that to pay on schedule and you will experience the rewards of punctuality.

Building Business Credit Programs: Your Personal Credit can Influence Your Business Credit

Are you having a dissatisfactory business year? Then it could end up on your consumer credit score. And in the event that your firm has not been around for too long, it will directly have an effect on your company credit. But you can unlink both by taking steps to separate them.

As an example, try to get credit cards only for your small business. Or open business checking accounts and various other bank accounts. Or maybe get a business loan. So then the credit reporting bureaus will begin to treat your private and business credit separately.

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

Building Business Credit Programs: The Credit Reporting Bureaus Can Just Plain Get it Wrong

Just the same as each company around, credit reporting agencies just like Equifax and Experian are only as good as their files. If your company’s name is similar to another’s, or your name is a lot like another business owner’s, there can possibly be some errors. So check those reports, and your company report at Dun & Bradstreet, PAYDEX.

Stay on top of these reports and question charges with records and transparent communications. Do not just allow them to stay wrong! You can fix this!

And while you’re at, it you should also be keeping track of the credit reporting agency which solely handles personal and not business credit. So that is TransUnion. If you do not know exactly how to pull a credit report, do not stress. It’s easy.

Building Business Credit Programs: The Method

Small business credit is credit in a small business’s name. It doesn’t tie to an entrepreneur’s consumer credit, not even when the owner is a sole proprietor and the sole employee of the business.

Consequently, a business owner’s business and personal credit scores can be very different.

The Benefits

Since company credit is separate from individual, it helps to safeguard a small business owner’s personal assets, in the event of court action or business insolvency.

Also, with two distinct credit scores, an entrepreneur can get two different cards from the same merchant. This effectively doubles buying power.

Another advantage is that even start-ups can do this. Going to a bank for a business loan can be a formula for disappointment. But building small business credit, when done the right way, is a plan for success.

Individual credit scores rely on payments but also various other elements like credit utilization percentages.

But for business credit, the scores actually merely depend on whether a business pays its invoices promptly.

The Process

Growing business credit is a process, and it does not happen automatically. A small business must proactively work to build small business credit.

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

Vendors are a big part of this process.

Undertaking the steps out of sequence will cause repetitive rejections. 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 denial 100% of the time.

Small Business Legitimacy

A company has to be legitimate to lending institutions and vendors.

Consequently a company will need a professional-looking website and e-mail address. And it needs to have website hosting bought from a company such as GoDaddy.

Also company telephone and fax numbers ought to have a listing on 411.com.

Also the company telephone number should be toll-free (800 exchange or similar).

A small business will also need a bank account dedicated strictly to it, and it needs to have every one of the licenses essential for operation.

Licenses

These licenses all must be in the precise, accurate name of the small business. And they need to have the same small business address and telephone numbers.

So bear in mind that this means not just state licenses, but potentially also city licenses.

Dealing with the Internal Revenue Service

Visit the Internal Revenue Service web site and acquire an EIN for the small business. They’re free of charge. Pick a business entity like corporation, LLC, etc.

A business can begin as a sole proprietor. But they will more than likely want to switch to a type of corporation or partnership.

This is in order to reduce risk. And it will take full advantage of tax benefits.

A business entity will matter when it comes to tax obligations and liability in the event of litigation. A sole proprietorship means the business owner is it when it comes to liability and taxes. No one else is responsible.

Sole Proprietors Take Note

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 company name. Therefore, you can wind up being personally responsible for all company debts.

Plus, 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! Prevent confusion and substantially reduce the chances of an IRS audit at the same time.

Beginning the Business Credit Reporting Process

Begin at the D&B web site and obtain a totally free D-U-N-S number. A D-U-N-S number is how D&B gets a 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.

This way, Experian and Equifax will have activity to report on.

Vendor Credit Tier

First you should build 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 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 to start with, what is trade credit? These trade lines are credit issuers who will give you initial credit when you have none now. Terms are oftentimes Net 30, instead of 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 have to be paid in full within 30 days. 60 accounts must be paid fully 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 made use of.

To begin your business credit profile the proper way, you need to get approval for vendor accounts that report to the business credit reporting agencies. Once 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.

Vendor Credit Tier – It Makes Sense

Not every vendor can help like true starter credit can. These are vendors that will grant an approval with minimal 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 need to apply more than one time to these vendors, and you may have to purchase some items you don’t need. So this is to validate you are reliable and will pay timely.

Consider donating unwanted things to charity.

Uline Shipping Supplies

Uline Shipping Supplies is a true starter vendor. You can find them online at www.uline.com. They sell shipping, packing, and industrial supplies, and they report to D&B.

You must have a D-U-N-S number. They will request 2 references and a bank reference. The initial few orders may have to be prepaid to initially get approval for Net 30 terms. Also, you may have to buy some things you don’t need.

Quill

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.

Since 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 established.

Typically they’ll put you on a 90 day prepayment schedule. If you order items monthly for 3 months, they will typically approve you for a Net 30 Account.

Grainger Industrial Supply

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 any person with a business license.

Accounts That Do Not Report

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 yet be of some value.

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, therefore making financial planning less complicated. These are providers like PayPal Credit, T-Mobile, and Best Buy.

Retail Credit Tier

Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, then progress 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 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 more.

Fleet Credit Tier

Are there 8 to 10 accounts reporting? Then move onto the fleet credit tier. These are companies like BP and Conoco. Use this credit to buy, 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 more and a 411 business telephone listing.

Shell might claim 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 an approval.

Cash Credit Tier

Have you been responsibly managing the credit you’ve up to this point? Then move onto 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 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).

Also they want you to have an established small business.

These are service providers such as Walmart and Dell, and also Home Depot, BP, and Racetrac. These are normally MasterCard credit cards. If you have 14 trade accounts reporting, then these are doable.

Monitor Your Business Credit

Know what is happening with your credit. Make certain it is being reported and address any mistakes as soon as possible. Get in the habit 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 Your Records

Update the info 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. And for Equifax, go here: www.equifax.com/business/small-business.

Fix Your Business Credit

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

Get your company’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 inaccuracies commonly means you send a paper letter with copies of any proofs of payment with it. These are documents like receipts and cancelled checks. Never mail the original copies. Always mail copies and retain the originals.

Fixing credit report mistakes also means you precisely spell out any charges you dispute. Make your dispute letter as clear as possible. Be specific about the problems 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 instructions here: www.equifax.com/small-business-faqs/#Dispute-FAQs.

You can dispute mistakes 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 contact number is here: www.dandb.com/glossary/paydex.

A Word about Building Business Credit

Always use credit responsibly! Never borrow more than what you can pay back. Track balances and deadlines for payments. Paying off promptly and in full will do more to increase business credit scores than just about anything else.

Building small business credit pays. Good business credit scores help a company get loans. Your credit issuer knows the company can pay its financial obligations. They recognize the small business is for real.

The company’s EIN connects to high scores and credit issuers won’t feel the need to require a personal guarantee.

Takeaway

Business credit is an asset which can help your small business in years to come. Learn more here and get started toward growing company credit.

Building Business Credit Programs: Takeaways

Once you find out what affects your business credit score, you are that much closer to developing better business credit. Learn more here and get started toward building business credit and better understanding building business credit programs.

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