Published By Janet Gershen-Siegel at October 7, 2018
Do you know how to use your EIN for credit? We can show you how and why to separate your personal and commercial credit, using your EIN all the way.
Whether you have a new small company, or you are now associated because you paid for one or have suddenly become an owner or a manager, it doesn’t matter. For here are reasons you ought to develop your business credit using your EIN.
Even if you are a sole proprietor, it will still help, big time, for you to erect a financial fence between your consumer credit and your company credit. This is true even if, let’s say, you sell a specific thing handmade by no one but you.
How come? Because keeping a barrier means that your consumer credit will not be influenced by your company credit. You don’t stand to lose a car, for example, in case your business enters receivership.
Even if you pay all of your business’s charges on schedule, each and every single time, you aren’t doing yourself any favors utilizing your personal charge cards to settle business liability. So this also includes other accounts such as a checking or savings account.
How come? Because the two forms of credit ratings are impacted by what’s called the Credit Utilization Rate. This is just a basic computation of the credit you’re making use of. And then it’s divided by your total available credit. So you want to keep this ratio at around 30% or less.
That is why, if you are using your consumer cards to pay for your business expenses, you are inflating your credit utilization rate. If you bring it above the 30% benchmark, then your individual credit score will be adversely affected.
And this is true even though you are diligent about paying off your business financial obligations.
So save your utilization rate!
For the big credit reporting agencies, credit history is one of the components they use when figuring your business credit score. The longer (and better) your credit history, the better your small business’s credit score is likely to be.
When you take into consideration what credit score needed for a business loan, then you need every bit of your credit score you can get. So if you start early, it can only help you.
These big credit reporting agencies are Experian, Equifax, and Dun and Bradstreet. You know, all the places you know of where to review a business credit score.
You may not want to ponder it, but there are going to be occasions when the work runs out. If you are in a seasonal business, then this is a part of the DNA of your company. But every company can undergo leaner times.
You may have to make payroll or equipment payments. Or you might just need to pay the rent. But either way, you are going to really need business credit to get by.
And by developing your business credit even before you actually need it, you are much more likely to get excellent terms. Or maybe get credit at all. So use your EIN for credit and get started right away.
So what does this mean? Have you been responsible? Have you set up your company with an EIN (employer identification number)?
So then at some point in the process you had to work with the Internal Revenue Service.
You had to tell the IRS that your small business is, indeed, an authentic business. And you had to show it is not just a leisure activity or the like.
Thus, the IRS is already treating you and your small business separately. That is, when it comes to tax liability. Consequently, if you’re still floating interest-free loans to your business with your personal credit cards, then stop! Because now is the time to cut that out.
So use your EIN for credit and separate your finances. And at the same time, make the IRS happy. Okay that’s going too far. Make the IRS happier, at least.
What is trade credit? It’s where you work straight with a neighborhood supplier to develop a relationship. And through this you can have a small loan (that is, credit) floated to you for the kinds of things you need at all times.
A freelance writer needs flash drives and printer ink and perhaps pens and paper. A plumber needs lengths of pipe. A carpenter needs nails. And pretty much everyone needs coffee. This is where you can start business credit!
When you start a trade credit relationship, you also open the door for other sorts of relationships. By supporting a local business, you help your community. In addition, you never know who will introduce you to your next customer.
Not every vendor can help in the same way true starter credit can. These are merchants that will grant an approval with little effort. You also want them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.
You need to use your EIN for credit with these vendors.
And you want five to eight 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 purchase some things you don’t need to have. But this is to verify you are trustworthy and will pay on time.
Consider giving nonessential things to charitable organizations.
Uline Shipping Supplies is a true starter vendor. You can find them online at https://www.uline.com/.
They sell shipping, packing, and industrial supplies, and they report to D&B.
You will have to have a DUNS number. They will ask for 2 references and a bank reference.
The first few orders might have to be paid in advance to initially get approval for Net 30 terms. Also, you may need to buy some items you do not need.
Quill is an additional true starter vendor. You can find them online at https://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 bureaus, you get two credit experiences with them. Place an initial order first unless the D&B score is developed.
Generally they’ll put you on a 90 day prepayment schedule. If you order items every month for 3 months, they will commonly approve you for a Net 30 Account.
Grainger Industrial Supply is likewise a true starter vendor. You can find them online at https://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 DUNS number.
For under $1000 credit limit they will approve nearly 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 yet be of some value. You can always ask non-reporting accounts for trade references.
This can include local vendors. So there’s the additional bonus of helping your community.
And also credit accounts of any sort should help you to better even out business expenditures. So this thereby makes budgeting simpler. These are companies like PayPal Credit, T-Mobile, and Best Buy.
Sometimes a business opportunity is just too good to pass up. And you need to act quickly. This may possibly be anything from buying realty at auction to procuring the equipment owned by a company undergoing reorganization.
It can also mean bidding on raw materials when they are at their best price for the year.
But you may not have that sort of funds handy. Developing business credit means that bank loans will be granted faster and with better terms.
You will have the chance to make the most of these opportunities, and seize them when they are still meaningful.
Without having business credit, despite the fact that you get a loan, it will inevitably take longer. And somebody else might buy those economical raw materials or outbid you when it comes to prime real estate.
And if you build business credit the right way, and use your EIN for credit, you may find you don’t need a bank loan after all. Really!
Establish business credit as early as you can and reap the advantages long after.
Business credit is an asset which can help your company for many years to come. You won’t regret establishing and building business credit.