Your Question: How Do I Establish Business Credit?

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Your Question: How Do I Establish Business Credit?

Published By Janet Gershen-Siegel at November 9, 2017

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One of Your Recent Questions Was: How Do I Establish Business Credit?

So you asked: how do I establish business credit? Establishing business credit means that your firm attains chances you never knew you would. You can get brand new equipment, bid on real property, and deal with the company payroll, even when times are a bit lean. This is particularly helpful in holiday companies, where you can go for calendar months with merely negligible sales.

Given this, you ought to focus on building your business credit. Improve and maintain your scores and you will have these chances. Do not, and either you do not get these opportunities, or they will set you back you a lot more. And no entrepreneur wants that. You have to recognize what affects your business credit before you can make it better.

Credit History Length Is Vital

This is generally the length of time your small business has been utilizing company credit. Certainly newer businesses will have very short credit histories. Although there is not so much you can specifically do about that, do not worry. Credit reporting bureaus will also inspect your personal credit score and your very own background of payments.

If your own personal credit is good, and particularly if you have a somewhat extensive credit history (that is, you did not just get your very first credit card a short time ago), then your consumer credit can come to the rescue of your company.

Typically the reverse is also true – if your consumer credit history is bad, then it will impact your business credit scores until your small business and personal credit can be split up.

Do Not Let Your Credit Utilization Rate Damage Your Small Business

Your credit utilization rate just signifies the amount of money you have on credit which is then divided by your total available credit. Lenders commonly do not wish to see this go above 30% (so for every $100 in credit, do not borrow on in excess of $30 of that). If this percent is increasing, you’ll need to spend down and repay your financial debts ahead of borrowing more.

Your Payment History Truly Matters

Overdue payments will influence your small business credit score for a good seven years. If you pay your small business (and personal) debts off, as fast as possible and as fully as possible, then you can make a very real difference when it comes to your credit scores. Make certain to pay timely and you will experience the benefits of punctuality.

Your Personal Credit Can Influence Your Corporate Credit

An unsatisfactory business year could wind up on your consumer credit score. And just in case your small business has not been in existence for too long, it will directly impact your corporate credit. Fortunately, you can unlink the two by taking measures to separate them.

For example, if you get credit cards solely for your small business, or you open up business checking accounts and various other bank accounts (or perhaps get a business loan), then the credit reporting bureaus will start to address your individual and corporate credit on an individual basis. Also, make certain to incorporate, or at the very least file a DBA (doing business as) status.

You can also take care of your company’s expenses with your firm credit card or checking account, and make certain it is the company’s full name on the bill and not your own.

The Credit Reporting Bureaus Can Just Plain Get it Wrong

Just the same as every single company around, credit reporting bureaus such as Equifax and Experian are only as good as their records. If your business’s name resembles another’s, or your name is a lot like another company owner’s, there can possibly be some oversights. So keep an eye on those reports, and your business report at Dun & Bradstreet, PAYDEX.

Remain on top of these reports and dispute charges with records and crystal clear communications. Do not just allow them to stay wrong! You can fix this! And while you’re at, it you should also be checking the credit reporting agency which only handles individual and not corporate credit, TransUnion. If you do not know exactly how to pull a credit report, do not worry. It’s easy.

Avoid These Common Errors

1. You Did Not Get a DUNS Number (or You Didn’t Get One quickly)

A DUNS number is essentially a distinct identifier for your small business. It is maintained through Dun & Bradstreet. In the absence of a DUNS number, credit reporting bureaus do not know your business even exists. So if your company does not yet have one, this is easy to fix! These are simple to get, and they are free. You can apply for a DUNS number via Dun & Bradstreet’s web site. The DUNS number is necessary to get you into D & B’s system and then you can begin establishing credit and have it count toward your credit reports.

2. You Used More Credit Than Your Company Could Handle

Credit can be intoxicating. Take a look at all of that free money! Look at all the things your company needs!

Wait; wait, whoa, time out!

It is not cost-free cash. It’s a loan, really. All credit is, regardless if it’s business or personal. If you have gone on a wild credit spree, your credit rating is going to be affected. How? There are two things. They are credit utilization percentage and delinquency.

Credit utilization is a little mathematics problem: take the quantity of credit, and then divide it by your company’s total amount of available credit. Anything over 30% is going to be frowned upon by the big credit reporting agencies. So keep that figure down.

Together with that is delinquency. When you are that much in hock, it could be difficult to stay up to date with the payments. Late payments will directly and adversely impact your corporate credit rating.
So be prudent with credit. This isn’t gambling; it’s your livelihood and the livelihood of anyone who works for you.

3. You Didn’t Stay on Top of Your Credit Scores

While credit reports aren’t exactly page turners, you should still be keeping up with them.

Don’t have enough time to peruse credit reports? Then use a monitoring service. Experian offers Business Credit Advantage. PAYDEX has Credit Reporter. And Equifax has Business Credit Monitor. If you prefer a free version for credit alerts, you can try CreditSignal. We also offer monitoring of Experian and D&B for $24/month.

4. You Didn’t Dispute Credit Reporting Agency Inaccuracies

This is the point of all that monitoring. If any of your credit reports have mistakes, you need to get on top of that, straightaway. Contesting credit report errors generally means you send a paper letter with copies of any proofs of payment with it. These are documents like receipts and cancelled checks.

Never send the originals. Always send copies and maintain the originals. Precisely itemize any charges you dispute. Make your dispute letter as clear-cut as possible. Use certified mail so you will have proof that you mailed in your dispute.

Jumping on a mistake quickly means your credit reports will be corrected quicker.

5. You Didn’t Separate Your Small Business and Consumer Credit (or You Didn’t Do So Quickly)

The longer and more closely your personal and business finances are commingled, the more likely it is that credit reporting bureaus will take your personal credit into account when considering your company.

This doesn’t give your small business a chance to make its own credit ‘name’, as it were. When you examine your business credit score vs personal credit score, they should be different.

Paying off your company’s invoices with personal charge cards or checks; not getting a distinct IRS EIN number for your small business; and not putting your company’s bills in the company’s name can all add to this problem.

And the Internal Revenue Service will probably have something to say about your business not having its own identification number.

So to fix this, your objective is as follows:

  • Get an EIN to start with. Apply online after you figure out your eligibility (that is, if your business is in the United States, etc.)
  • Go to your local bank and open up a business banking account and get a corporate credit card with it
  • Contact local suppliers and get your small business’s bills put into the company’s name. While you’re at it, start to build trade credit
  • Always pay the company’s bills with your business accounts or credit

Establishing Company Credit

Business credit is credit in a company name, in connection with the company’s EIN number, and not the owner’s Social Security Number. When carried out correctly, you can acquire corporate credit with no personal credit check and without a personal guarantee. This is a thing all other cards above can’t deliver.

You can get three types of business credit cards. Starting with vendor credit, it offers net 30 terms to start a business credit profile. With revolving store credit, you get credit cards with high limits at most establishments.

Fleet credit is cards for fueling, servicing, and maintaining vehicles. Then cash credit includes Visa, MasterCard, and American Express cards that you can use anywhere. You can get these without any credit check or guarantee. Limits are often $5,000 – $10,000 to begin, and can exceed $50,000.

Takeaways

Once you recognize what influences your business credit score, you are that much closer to building enhanced corporate credit. So if you’re asking, how do I establish business credit, then here are some answers. Discover this new way to answer the question: how do I establish business credit?

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