You May Be Wondering: How Do I Establish Business Credit?

How do I establish business credit, you ask?

Every Business Needs Business Credit Growth

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

Accordingly, a business owner’s business and consumer credit scores can be very different.

The Advantages

Due to the fact that business credit is independent from personal, it helps to protect a small business owner’s personal assets, in case of a lawsuit or business insolvency.

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

Another benefit is that even new ventures can do this. Going to a bank for a business loan can be a recipe for disappointment. But establishing small business credit, when done correctly, is a plan for success.

Individual credit scores are dependent on payments but also various other components like credit usage percentages.

But for business credit, the scores actually only depend on whether a small business pays its bills on time.

The Process

Growing small business credit is a process, and it does not occur without effort. A company will need to actively work to develop small business credit.

Nonetheless, it can be done readily and quickly, and it is much faster than developing personal credit scores.

Vendors are a big component of this process.

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

Company Fundability

A company needs to be fundable to credit issuers and vendors.

As a result, a company will need a professional-looking website and email address. And it needs to have site hosting bought from a merchant such as GoDaddy.

In addition, business phone and fax numbers should have a listing on ListYourself.net.

At the same time, the business telephone number should be toll-free (800 exchange or the equivalent).

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

Licenses

These licenses all must be in the correct, appropriate name of the business. And they must have the same company address and telephone numbers.

So keep in mind, that this means not just state licenses, but possibly also city licenses.

Learn more here and learn the answer to your question: how do I establish business credit.

Dealing with the Internal Revenue Service

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

A business can start off as a sole proprietor. But they will probably want to switch to a type of corporation or an LLC.

This is in order to decrease risk. And it will make best use of tax benefits.

A business entity will matter when it comes to taxes and liability in case of a lawsuit. A sole proprietorship means the entrepreneur is it when it comes to liability and taxes. No one else is responsible.

Sole Proprietors Take Note

If you run a small business as a sole proprietor, then at 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 business name. Therefore, you can find yourself being personally responsible for all company financial obligations.

Plus, per the Internal Revenue Service, by having this structure there is a 1 in 7 chance of an IRS audit. There is a 1 in 50 chance for corporations! Prevent confusion and dramatically lower the chances of an Internal Revenue Service audit as well.

Starting the Business Credit Reporting Process

Begin at the D&B web site and obtain a free D-U-N-S number. A D-U-N-S number is how D&B gets a small 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 small business. You can do this at fastcs.wpengine.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.

By doing this, Experian and Equifax will have something to report on.

How Do I Establish Business Credit: The Vendor Credit Tier

First you need to establish 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 start to obtain credit in the retail and cash credit tiers.

These kinds of accounts have the tendency to be for the things bought all the time, like marketing materials, 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 oftentimes Net 30, versus 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, such as 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 in full within 60 days. In comparison with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you used.

To launch your business credit profile the right way, you need to 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 repay what you used, and the account is on report to Dun & Bradstreet, Experian, or Equifax.

Vendor Credit Tier – It Helps

Not every vendor can help in the same way true starter credit can. These are vendors that will grant an approval with marginal 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 once to these vendors. So, this is to demonstrate you are dependable and will pay in a timely manner.

Learn more here and learn the answer to your question: how do I establish business credit.

How Do I Establish Business Credit: The Retail Credit Tier

Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, then move to the retail credit tier. These are companies which include Office Depot and Staples.

Only use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, use the company’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 higher.

How Do I Establish Business Credit: The Fleet Credit Tier

Are there 8 to 10 accounts reporting? Then move to the fleet credit tier. These are businesses such as BP and Conoco. Use this credit to purchase fuel, and to fix, and maintain vehicles. Only use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, make certain to apply using the small business’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 phone listing.

Shell may say 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.

How Do I Establish Business Credit: The Cash Credit Tier

Have you been responsibly managing the credit you’ve up to this point? Then progress to the cash credit tier. These are service providers such as Visa and MasterCard. Just use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, use your EIN instead.

One such example is the Fuelman MasterCard. They report to D&B and Equifax Business. They need to see a PAYDEX Score of 78 or higher. 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).

In addition, they want you to have an established company.

These are businesses such as Walmart and Dell, and also Home Depot, BP, and Racetrac. These are frequently MasterCard credit cards. If you have 14 trade accounts reporting, then these are in reach.

How Do I Establish Business Credit: Monitor Your Business Credit

Know what is happening with your credit. Make certain it is being reported and address any errors as soon as possible. Get in the habit 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: fastcs.wpengine.com/monitoring.

Update Your Information

Update the relevant information if there are inaccuracies or the information is incomplete.

Learn more here and learn the answer to your question: how do I establish business credit.

How Do I Establish Business Credit: Fix Your Business Credit

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

Disputes

Disputing credit report mistakes normally means you send a paper letter with copies of any evidence of payment with it. These are documents like receipts and cancelled checks. Never mail the originals. Always mail copies and retain the originals.

Fixing credit report inaccuracies also means you specifically detail any charges you contest. 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 mailed in your dispute.

How Do I Establish Business Credit: Takeaways

Always use credit smartly! Don’t borrow beyond what you can pay off. Monitor balances and deadlines for payments. Paying off punctually and completely will do more to raise business credit scores than almost anything else.

Building business credit pays. Good business credit scores help a business get loans. Your credit issuer knows the business can pay its debts. They know the small business is bona fide.

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

Business credit is an asset which can help your business for many years to come. Learn more here and get started toward establishing business credit.