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Little-Known Life Hacks: How to Build Your Business Credit

Published By Janet Gershen-Siegel at November 30th, 2017

How to Build Your Business Credit and Knock Out Your Competition

Build your business credit and it can happen.

Building better business credit means that your business gets opportunities you never assumed it would. You can get brand-new equipment, bid on real property, and cover the company payroll. And you get this even when times are a bit lean.

And It Really Matters Here…

This is especially helpful in holiday companies, where you can go for months with only minimal sales.

Given this, you need to work on growing your business credit. Boost and maintain your scores and you will have these opportunities. 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 ought to know what affects your small business credit before you can make it better.

How to Build Your Business Credit: Credit History Length Is Vital

This is in essence how long your business has been making use of business credit. Naturally newer firms will have very short credit histories.

While there is not too much you can particularly do about that, do not fret. Credit reporting bureaus will also evaluate your personal credit score and your personal history of payments.

Personal Credit to the Rescue!

If your individual credit is excellent, and especially if you have a somewhat extensive credit history, then your individual credit can come to the rescue of your company. So that is, you did not just get your very first credit card fairly recently.

Obviously the opposite is also true. So if your individual credit history is bad, then it will have a bearing on your business credit scores. That is, until your small business and personal credit can be split up.

How to Build Your Business Credit: Don’t Allow Your Credit Utilization Rate to Damage Your Small business

Your credit utilization rate just shows the amount of money you have on credit. So it is then divided by your overall available credit. Lenders ordinarily do not want to see this exceed 30%. So for every $100 in credit, do not borrow on in excess of $30 of that.

If this percent is rising, you’ll have to spend down and satisfy your financial obligations prior to borrowing more.

How to Build Your Business Credit: Your Payment History Truly Matters

Overdue monthly payments will have an effect on your company credit score. Did you know that’s for a good seven years? If you pay company debts off, as fast and completely as possible, then you can make a very real difference in your credit scores.

Be sure to pay in a timely manner. And you will enjoy the benefits of promptness.

How to Build Your Business Credit: Your Personal Credit can have a bearing on Your Corporate Credit

A dissatisfactory business year could end up on your individual credit score. And just in case your small business has not been around for too long, it will directly affect your business credit.

Separate Personal and Business Credit ASAP

Nonetheless, you can unlink both by taking measures to uncouple them. For example, then the credit reporting agencies will begin to treat your private and small business credit on an individual basis.

So this can happen if you get credit cards just for your small business, or you open up business checking accounts and other bank accounts. Or maybe get a business loan.

Also, make sure to incorporate. Or at least file a DBA (doing business as) status.

You can also pay for your company’s expenses with your firm credit card or checking account. And make certain it is the business’s full name on the bill and not yours.

How to Build Your Business Credit: The Credit Reporting Bureaus Can Just Plain Get it Wrong

Just like as every entity out there, credit reporting agencies such as Equifax and Experian are only as good as their data. 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 small business report at Dun & Bradstreet, PAYDEX. Stay on top of these reports. And contest charges with records and clear-cut communications.

Watch Your Reports!

Do not just allow them to stay wrong! You can correct this! And while you’re at it, keep an eye on the credit reporting agency which only handles consumer and not small business credit, TransUnion.

If you do not know exactly how to pull a credit report, do not fret. It’s easy.

How to Build Your Business Credit: The Method

But how do I do it? I hear you ask. Not to worry. Here are the steps.

The Process

Establishing corporate credit is a process, and it does not happen without effort. A company must actively work to establish company credit. Nevertheless, it can be done readily and quickly, and it is much more rapid than developing individual credit scores.

Merchants are a big aspect of this process.

Carrying out the steps out of order will lead to repetitive denials. No one can start at the top with small business credit. For instance, you can’t start with store or cash credit from your bank. If you do you’ll get a rejection 100% of the time.

Company Credibility

A corporation has to be respectable to lenders and merchants. That’s why; a small business will need a professional-looking web site and email address, with site hosting from a supplier such as GoDaddy. Also company telephone and fax numbers must have a listing on 411.com.

Also the business telephone number should be toll-free (800 exchange or the equivalent).

A small business will also need a bank account devoted only to it, and it needs to have every one of the licenses necessary for operating. These licenses all must be in the correct, appropriate name of the company, with the same company address and phone numbers.

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

Working with the Internal Revenue Service

Visit the Internal Revenue Service website and acquire an EIN for the corporation. They’re totally free. Choose a business entity like corporation, LLC, etc.

A company can start off as a sole proprietor but will most likely want to change to a type of corporation or partnership to minimize risk and make best use of tax benefits.

Business Entities Matter

A business entity will matter when it pertains to tax obligations and liability in the event of litigation. A sole proprietorship means the owner is it when it comes to liability and taxes. Nobody else is responsible.

If you run a corporation as a sole proprietor, then at least be sure to file for a DBA (‘doing business as’) status.

If you do not, then your personal name is the same as the company name. Consequently, you can wind up being personally responsible for all company financial obligations.

Also, per the IRS, using this arrangement there is a 1 in 7 possibility of an IRS audit. There is a 1 in 50 possibility for corporations! Steer clear of confusion and dramatically reduce the odds of an Internal Revenue Service audit as well.

Instigating the Business Credit Reporting Process

Start at the D&B web site and get a free DUNS number. A DUNS number is how D&B gets a company in 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 small business. You can do so 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. This way, Experian and Equifax will have something to report on.

Trade Lines

First you need to 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 getting revolving store and cash credit.

These types of accounts have the tendency 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 often Net 30, instead of revolving.

So if you get an approval for $1,000 in vendor credit and use all of it, you will need to pay that money back in a set term, such as within 30 days on a Net 30 account.

Details

Net 30 accounts must be paid in full within 30 days. 60 accounts have to be paid fully within 60 days. Unlike with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you made use of.

To begin your business credit profile the right way, get approval for vendor accounts reporting to the business credit reporting agencies. Once that’s done, you can then make use of the credit.

Then repay 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 negligible 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 have to apply more than once to these vendors, and you may need to buy some items you do not need, to confirm you are responsible and will pay in a timely manner. Consider giving unwanted items to charitable organizations.

Revolving Store Credit

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 companies such as Office Depot and Staples. These companies are likelier to have items you need.

Use the company’s EIN on these credit applications.

Fleet Credit

Are there 8 to 10 accounts reporting? Then progress to fleet credit. These are companies like BP and Conoco. Use this credit to buy, fix, and maintain vehicles. Make sure to apply using the small business’s EIN.

Cash Credit

Have you been sensibly handling the credit you’ve up to this point? Then progress to cash credit. These are service providers like Visa and MasterCard. Keep your SSN off these applications; use your EIN instead.

These are service providers like Walmart and Dell, and also Home Depot, BP, and Racetrac. These are often 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 attend to any mistakes ASAP. Get in the practice of checking 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: https://www.creditsuite.com/business-credit-monitoring. Update the details if there are errors or the information is incomplete.

Challenging Errors

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

Disputing credit report inaccuracies usually means you mail a paper letter with duplicates of any proof of payment with it. These are documents like receipts and cancelled checks. Never mail the originals. Always send copies and keep the original copies.

Disputing credit report mistakes also means you precisely detail any charges you challenge. Make your dispute letter as understandable 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.

A Word about How to Build Your Business Credit

Always use credit responsibly! Never borrow beyond what you can pay off. Keep track of balances and deadlines for repayments. Paying punctually and in full will do more to increase business credit scores than just about anything else.

Building corporate credit pays off. Great business credit scores help a corporation get loans. Your lending institution knows the business can pay its debts. They recognize the business is for real.

The business’s EIN links to high scores and loan providers won’t feel the need to request a personal guarantee.

Business credit is an asset which can help your company for many years to come.

How to Build Your Business Credit: Back to You

Once you understand what effects your corporate credit score, you are that much nearer to building better corporate credit. Learn more here and get started toward how to build your business credit.

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