Written by Janet Gershen-Siegel

You Asked: How Do You Build Business Credit? Know This Before Anyone Else Does!

So, how do you build business credit? Do you know how to effectively build business credit? We break down just what you need to know and show you what will work.

Developing business credit means that your company gets opportunities you never felt you would. You can get brand-new equipment, bid on realty, and cover the company payroll. And this is even when times are a bit lean. This is specifically helpful in holiday business enterprises, where you can go for calendar months with simply minimal sales.

As a result of this, you should really focus on building your company credit. Improve and maintain your scores and you will have these chances. Do not, and either you do not get these chances, or they will cost you a lot more. And no small business owner wants that. You ought to understand what affects your business credit before you can make it better. And then you’ll be able to answer if others ask: how do you build business credit?

Credit History Length Is Vital

This is in essence the length of time your firm has been working with business credit. Certainly newer companies will have very short credit histories. While there is not so much you can particularly do about that, do not stress.

Credit reporting bureaus will also evaluate your personal credit score and your record of payments. If your consumer credit is good, and especially if you have a reasonably lengthy credit history, then your consumer credit can come to the rescue of your company.

Of course the opposite is also true. If your consumer credit history is poor, then it will have an effect on your business credit scores until your business and personal credit can be separated.

Do Not Allow Your Credit Utilization Rate to Hurt Your Small Business

Your credit utilization rate is the amount on credit, and then divide that by total available credit. Lenders, generally speaking, do not wish to see this exceed 30%. So for every $100 in credit, do not borrow on over $30 of that. If this percentage is increasing, you’ll have to spend down and work off your financial obligations before borrowing more.

Your Payment History Truly Matters

Tardy payments will have an effect on your small business credit score for a good seven years. If you pay your business financial obligations off, as fast and as fully as possible, then you can make a very real difference when it pertains to your credit scores. Ensure that to pay promptly and you will experience the rewards of promptness.

Your Personal Credit Can Affect Your Corporate Credit

A bad business year could end up on your individual credit score. And if your company has not been around for too long, it will directly have an effect on your corporate credit. Nevertheless, you can unlink both by taking steps 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, then the credit reporting bureaus will start to address your individual and small business credit independently. Also, be sure to incorporate, or at the very least file a DBA.

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

The Credit Reporting Bureaus Can Just Plain Get it Wrong

Just like each entity out there, credit reporting bureaus like Equifax and Experian are only as good as their information. If your firm’s name resembles another’s, or your name is a lot like another business owner’s, there could be some mistakes.

So monitor those reports, and your company report at Dun & Bradstreet, PAYDEX. Remain on top of these reports and question charges with documentation and crystal clear communications. Do not just allow them to stay incorrect! You can correct this!

And while you’re at it, monitor the credit reporting bureau which solely handles individual and not corporate credit, TransUnion. If you do not know how to pull a credit report, do not stress. It’s simple.

Now let’s exactly answer the question: how do you build business credit?

Building Business Credit

Corporate credit is credit in a business’s name. It isn’t connected to an entrepreneur’s personal credit, not even if the owner is a sole proprietor and the solitary employee of the company. Accordingly, an entrepreneur’s business and individual credit scores can be very different.

The Advantages

Due to the fact that corporate credit is separate from consumer, it helps to safeguard an entrepreneur’s personal assets, in case of litigation or business bankruptcy. Also, with two separate credit scores, a business owner can get two different cards from the same merchant. This effectively doubles buying power.

Another benefit is that even new ventures can do this. Visiting a bank for a business loan can be a recipe for disappointment. But building company credit, when done correctly, is a plan for success.

Individual credit scores depend upon payments but also other components like credit utilization percentages. But for corporate credit, the scores really merely depend on if a corporation pays its bills punctually.

The Process

Establishing small business credit is a process, and it does not happen without effort. A corporation has to proactively work to establish company credit. Nevertheless, it can be done readily and quickly, and it is much more efficient than developing personal credit scores. Vendors are a big aspect of this process.

Carrying out the steps out of sequence will cause repeated denials. Nobody can start at the top with company credit. For example, you can’t start with store or cash credit from your bank. If you do you’ll be turned down 100% of the time.

Company Legitimacy

A business has to be legit to loan providers and vendors. That is why, a business will need a professional-looking web site and email address, with website hosting purchased from a company like GoDaddy. Additionally business phone and fax numbers need to be listed on ListYourself.net.

At the same time the company phone number should be toll-free (800 exchange or comparable).

A business will also need a bank account dedicated solely to it, and it must have every one of the licenses required for operation. These licenses all must be in the specific, correct name of the company, with the same corporate address and phone numbers. Bear in mind that this means not just state licenses, but potentially also city licenses.

Dealing with the Internal Revenue Service

Visit the Internal Revenue Service website and acquire an EIN for the small business — they’re totally free. Choose a business entity such as corporation, LLC, etc. A business can begin as a sole proprietor but will probably wish to change to a sort of corporation or partnership to limit risk and take full advantage 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 tax obligations. No one else is responsible.

If you operate a small business as a sole proprietor at least file for DBA (‘doing business as’) status. If you do not, then your personal name is the same as the company name. Hence, you can end up being personally accountable for all business financial obligations.

Plus, according to the Internal Revenue Service, using this structure there is a 1 in 7 possibility of an IRS audit. There is a 1 in 50 chance for incorporated businesses! Steer clear of confusion and drastically decrease the chances of an IRS audit at the same time.

Starting Off the Business Credit Reporting Process

Begin at the D&B web site and obtain a totally free DUNS number. A DUNS number is how D&B gets a corporation into 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 corporation. You can do this at https://oldcs.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. In this way, Experian and Equifax will have activity to report on.

Trade Lines

First you should establish trade lines that report. This is also referred to as vendor credit. 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 obtaining revolving store and cash credit.

These sorts of accounts tend 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 creditors who will give you starter credit when you have none now. Terms are ordinarily Net 30, instead of revolving. So if you get approval for $1,000 in vendor credit and use all of it, you must pay that money back in a set term, like within 30 days on a Net 30 account.

Details

Net 30 accounts have to be paid in full within 30 days. 60 accounts need to be paid fully within 60 days. In contrast to 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 properly, you should get approval for vendor accounts that report to the business credit reporting bureaus. When that’s done, you can then use the credit, pay back what you used, and the account is reported to Dun & Bradstreet, Experian, or Equifax.

Not every vendor can help in the same way true starter credit can. These are merchants that will grant an approval with minimal 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 – 8 of these to move onto the next step, which is revolving store credit. Also, you may need to apply more than one time to these vendors, and you may have to buy some things you do not really need, to prove you are reliable and will pay timely. Consider donating unwanted things to charitable organizations.

Revolving Store Credit

Once there are 5 – 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 things you need. 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 DUNS and a PAYDEX score of 78 or better.

Fleet Credit

Are there 8 – 10 accounts reporting? Then move onto fleet credit. These are businesses such as BP and Conoco. Use this credit to purchase, repair, and maintain vehicles. Make sure to apply using the business’s EIN.

One such example is Shell. They report to D&B and Business Experian. They need to see a PAYDEX Score of 78 or more and a 411 corporate phone listing. Shell might say they want a particular amount of time in business or profits — but if you already have adequate trade lines, that won’t be needed and you can still get approval.

Cash Credit

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

One example is the Fuelman MasterCard. They report to D&B and Equifax Business. They need to see a PAYDEX Score of 78 or more; 10 trade lines reporting on your D&B report; and a $10,000 high credit limit reporting on D&B report (other account reporting). Also they want you to have an established corporation.

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.

Monitor Your Business Credit

Know what is happening with your credit. Make certain it is being reported and address any errors ASAP. Get in the habit of taking a look at credit reports and digging into the particulars, and not just the scores.

We can help you monitor business credit at Experian and D&B for only $24/month. See: https://oldcs.creditsuite.com/business-credit-monitoring. Update the information if there are errors or the relevant information is incomplete.

Disputing Credit Report Errors

What’s all this monitoring for? It’s to dispute any mistakes in your records. Errors in your credit report(s) can be corrected. But the CRAs usually want you to dispute in a particular way.

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

Disputing credit report inaccuracies also means you specifically spell out any charges you contest. Make your dispute letter as understandable as possible. Be specific about the concerns with your report. Use certified mail so that you will have proof that you sent in your dispute.

Always use credit sensibly! Don’t borrow beyond what you can pay off. Monitor balances and deadlines for repayments. Paying off in a timely manner and in full will do more to raise business credit scores than nearly anything else.

Establishing business credit pays. Great business credit scores help a business get loans. Your lending institution knows the company can pay its debts. They know the business is bona fide. The corporation’s EIN connects to high scores, and creditors won’t feel the need to request a personal guarantee.

How Do You Build Business Credit: Takeaways

Once you find out what influences your corporate credit score, you are that much nearer to creating improved corporate credit. You will know, if someone asks: how do you build business credit? Learn more here and get started toward building business credit attached to your company’s EIN and not your SSN. And you’ll be able to answer the question: How do you build business credit?