Do You Want to Know How to Build Small Business Credit?

We know how to build small business credit. And we are willing to tell you our secrets!

Company credit is credit in a business’s name. It doesn’t attach to a business owner’s consumer credit, not even when the owner is a sole proprietor and the only employee of the company.

Therefore, a business owner’s business and consumer credit scores can be very different. It can be surprisingly fast and easy to build small business credit.

Build Small Business Credit: The Benefits

Because small business credit is distinct from individual, it helps to secure an entrepreneur’s personal assets, in case of a lawsuit or business bankruptcy.

Also, with two separate credit scores, a business owner can get two separate cards from the same merchant. This effectively doubles purchasing power.

Another benefit is that even start-ups can do this. Heading to a bank for a business loan can be a recipe for frustration. But building small business credit, when done properly, is a plan for success.

Personal credit scores are dependent on payments but also various other elements like credit use percentages.

But for small business credit, the scores really just depend on whether a business pays its debts on a timely basis.

Build Small Business Credit: The Process

Building business credit is a process, and it does not occur automatically. A company must actively work to establish small business credit.

That being said, it can be done readily and quickly, and it is much quicker than building personal credit scores.

Merchants are a big aspect of this process.

Undertaking the steps out of sequence 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.

Build Small Business Credit: Get Started with Small Business Fundability

A business has to be fundable to credit issuers and merchants.

Therefore, a business will need a professional-looking website and e-mail address. And it needs to have site hosting from a merchant like GoDaddy.

And, company telephone and fax numbers should have a listing on ListYourself.net.

Additionally, the business telephone number should be toll-free (800 exchange or comparable).

A business will also need a bank account dedicated only to it, and it needs to have all of the licenses necessary for operating.

Licenses

These licenses all have to be in the particular, 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 possibly also city licenses.

Learn more here and get started toward growing small business credit.

Build Small Business Credit: Start Working with the IRS

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

A business can begin as a sole proprietor. But they will more than likely wish to switch to a kind of corporation or an LLC.

This is in order to lessen risk. And it will optimize tax benefits.

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

Sole Proprietors Take Note

If you run 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 business name. Therefore, you can find yourself being personally responsible for all small business debts.

Plus, per the Internal Revenue Service, using this arrangement there is a 1 in 7 chance of an IRS audit. There is a 1 in 50 possibility for corporations! Steer clear of confusion and significantly lower the chances of an IRS audit at the same time.

Build Small Business Credit: Kicking Off the Process

Start at the D&B website and obtain a cost-free D-U-N-S number. A D-U-N-S number is how D&B gets a small business in their system, to generate 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 websites for the business. You can do this at fastcs.wpengine.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.

By doing so, Experian and Equifax will have activity to report on.

Vendor Credit Tier

First you should build trade lines that report. This is also referred to as 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 get credit in the retail and cash credit tiers.

These sorts of accounts often tend to be for the things bought all the time, like marketing materials, 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 normally Net 30, rather than revolving.

Hence, if you get an 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 need to be paid in full within 30 days. 60 accounts must be paid in full 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 kick off your business credit profile properly, 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 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 very little 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 prove you are trustworthy and will pay on time. Here are some stellar choices from us: https://oldcs.creditsuite.com/blog/5-vendor-accounts-that-build-your-business-credit/

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 service providers like 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 business’s EIN on these credit applications.

One good example is Lowe’s. They report to D&B, Equifax and Business Experian. They need 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 such as BP and Conoco. Use this credit to buy fuel, and to repair, 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 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 better and a 411 company telephone listing.

Shell may claim they want a specific 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.

Learn more here and get started toward growing small business credit.

Cash Credit Tier

Have you been sensibly managing the credit you’ve up to this point? Then progress to the cash credit tier. These are businesses like Visa and MasterCard. Just use your SSN 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 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).

Plus, they want you to have an established company.

These are service providers like 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 in reach.

Learn more here and get started toward growing small business credit.

Build Small Business Credit: Monitor Your Business Credit

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

At Equifax, you can monitor your account at: www.equifax.com/business/business-credit-monitor-small-business. Equifax costs about $19.99.

Update Your Data

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

Build Small Business Credit: Fix Your Business Credit

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

Get your business’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.

Disputes

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

Fixing credit report mistakes also means you precisely spell out any charges you contest. Make your dispute letter as clear as possible. Be specific about the issues with your report. Use certified mail so that you will have proof that you sent in your dispute.

Dispute your or your company’s Equifax report by following the instructions here: www.equifax.com/small-business-faqs/#Dispute-FAQs.

You can dispute mistakes on your or your business’s Experian report by following the directions here: www.experian.com/small-business/business-credit-information.jsp.

And D&B’s PAYDEX Customer Service telephone number is here: www.dandb.com/glossary/paydex.

Build Small Business Credit: A Word

Always use credit responsibly! Never borrow more than what you can pay back. Keep an eye on balances and deadlines for payments. Paying in a timely manner and completely will do more to raise business credit scores than nearly anything else.

Establishing small business credit pays. Great business credit scores help a business get loans. Your lending institution knows the small business can pay its debts. They understand the small business is authentic.

The business’s EIN connects to high scores and lenders won’t feel the need to ask for a personal guarantee.

Build Small Business Credit: Takeaway

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