Even Your Competitors Want to Know: How Do Business Credit Cards Affect Personal Credit?

It’s a popular question. How do business credit cards affect personal credit? We’ve got the answer.

When you take into account the difference between your company credit score vs consumer credit score, remember that any inquiries into your consumer credit score are going to detrimentally impact that score.

And a lot of businesses and lenders will undertake inquiries when they are doing business with you for the first time. You do not want their inquiries to affect your consumer credit.

To keep that from happening, you need to build business credit.

Get a D&B D-U-N-S number

You can’t get into Dun & Bradstreet’s system without having one, and they are free, anyway. A D-U-N-S number differentiates your company from all others, such as similarly-named companies.

Dun & Bradstreet has a prerequisite that you register your company on their website before they will distribute a D-U-N-S number.

Please keep in mind: there are a few marginally different ways of acquiring a D-U-N-S if your business belongs to a specific class. These include if your small business is a United State government contractor or grantee, or your company is in Canada, or you are working as an Apple developer.

File a DBA

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

Plus, per the Internal Revenue Service, with this structure you have a 1 in 7 likelihood of an IRS audit. This is in contrast to the 1 in 50 likelihood for incorporated businesses! Avoid confusion with this step, and you can dramatically reduce your chances of an IRS audit. And who wouldn’t want that?

Go Beyond a DBA and Make Your Small Business a Specific Legal Entity via Incorporation

Meet with your tax consultant or financial planner so as to choose which legal entity (sole proprietor, LLC or S-Corp) will most effectively fit your business and particular financial situation.

Incorporation can also help to protect your personal assets in the unlikely event of a lawsuit. Once your corporation or LLC is registered on your state’s Secretary of State’s website, you can then get a Business Federal Tax ID Number, so you can open your business’s bank account.

Get an EIN (Employment Identification Number, Also Known as a TIN, or Tax ID Number)

The IRS keeps it simple to do this (yes, really, it’s easy!). You can apply on the web as soon as you determine your eligibility.

• Is your main business established in the United States or in U.S.A. Territories?
• Does the individual who is applying have a valid Taxpayer ID Number? That is an SSN [Social Security Number], EIN, or ITIN [Individual Taxpayer Identification Number].

If so, then you can continue.

Start Business Checking and Savings Accounts

Have a conversation with your local bank about getting company checking and various other accounts. If you have been a reliable customer on the personal side of things, and you can prove your company is paying its bills punctually, then your bank is going to be a lot happier lending to your business.

Apply for Appropriate Bills through your Company

These are truly any invoices which are the straightforward obligation of your small business. Or, at the very least, they really should be. These consist of everything from Wi-Fi in your small business’s name to the rent or a mortgage for your workplace.

Your company might pay a cellular telephone company or perhaps the fuel oil or gas bill, if that is appropriate. Your company will notice credit scores climb as you pay the bills punctually.

Building Business Credit

The easiest way to keep business credit cards from affecting personal credit is to build business credit. Business credit is an asset which can help your small business in years to come. But how?

The Advantages

Because company credit is distinct from personal, it helps to protect an entrepreneur’s personal assets, in the event of court action or business insolvency. Also, with two separate credit scores, an entrepreneur can get two separate cards from the same vendor. This effectively doubles buying power.

Another benefit is that even startup companies can do this. Going to a bank for a business loan can be a formula for frustration. But building small business credit, when done the right way, is a plan for success.

Personal credit scores rely on payments but also additional considerations like credit utilization percentages. But for company credit, the scores actually merely depend on whether a business pays its bills timely.

The Process

Building company credit is a process, and it does not happen without effort. A company will need to proactively work to develop corporate credit. Having said that, it can be done easily and quickly, and it is much more rapid than building consumer credit scores. Vendors are a big aspect of this process.

Undertaking the steps out of sequence will cause repetitive denials. Nobody 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 denial 100% of the time.

Company Credibility

A small business has to be reliable to lending institutions and merchants. As a result, a small business will need a professional-looking website and email address, with site hosting from a vendor like GoDaddy. Also business phone and fax numbers ought to have a listing on ListYourself.net.

In addition the company telephone number should be toll-free (800 exchange or comparable).

A corporation will also need a bank account dedicated strictly to it, and it needs to have all of the licenses necessary for operation. These licenses all have to be in the particular, correct name of the company, with the same corporate address and telephone numbers. Bear in mind that this means not just state licenses, but possibly also city licenses.

Working with the Internal Revenue Service

Visit the Internal Revenue Service website and acquire an EIN for the business. They’re totally free. Pick a business entity such as corporation, LLC, etc. A small business can start off as a sole proprietor but will more than likely wish to switch to a variety of corporation or partnership to limit risk and take full advantage of tax benefits.

A business entity will matter when it pertains to tax obligations and liability in case of a lawsuit. A sole proprietorship means the entrepreneur is it when it comes to liability and tax obligations. Nobody else is responsible.

If you operate a business as a sole proprietor at least file for a 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 directly accountable for all corporate financial obligations.

And also, according to the IRS, by having this arrangement there is a 1 in 7 probability of an IRS audit. There is a 1 in 50 probability for corporations! Steer clear of confusion and dramatically lower the odds of an Internal Revenue Service audit at the same time.

Setting off the Business Credit Reporting Process

Start at the D&B web site and obtain a free DUNS number. A DUNS number is how D&B gets a corporation in their system, to generate 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 sites for the small business. 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. By doing this, Experian and Equifax will have activity to report on.

Trade Lines

First you ought 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 begin obtaining revolving store and cash credit.

These varieties 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 to start with, what is trade credit? These trade lines are credit issuers who will give you starter credit when you have none now. Terms are usually Net 30, instead of revolving.

Hence if you get approval for $1,000 in vendor credit and use all of it, you will 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 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 need to get approval for vendor accounts that report to the business credit reporting bureaus. 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.

Not every vendor can help like true starter credit can. These are merchants 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.

But you may need to apply more than one time to these vendors, and you may have to buy some items you don’t really need, to verify you are reliable and will pay timely. Consider giving unwanted things to charity.

Revolving Store Credit

Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, progress to revolving store credit. These are service providers like Office Depot and Staples. These companies are likelier to have items you need.

Use the corporation’s EIN on these credit applications.

Fleet Credit

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

Cash Credit

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

These are businesses such as 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 attainable.

Monitor Your Business Credit

Know what is happening with your credit. Make certain it is being reported and deal with any errors ASAP. Get in the practice of checking 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 90% less than it would cost you at the CRAs. See: https://oldcs.creditsuite.com/business-credit-monitoring. Update the information if there are errors or the details is incomplete.

Challenging Mistakes

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

Disputing credit report errors generally means you mail 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 keep the original copies.

Disputing credit report inaccuracies also means you specifically spell out any charges you dispute. Make your dispute letter as clear 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.

A Word about Business Credit Building

Always use credit responsibly! Don’t borrow beyond what you can pay off. Keep track of balances and deadlines for payments. Paying on schedule and in full will do more to raise business credit scores than virtually anything else.

Establishing corporate credit pays. Great business credit scores help a business get loans. Your lending institution knows the business can pay its financial obligations. They understand the company is authentic. The small business’s EIN connects to high scores, and lending institutions won’t feel the need to require a personal guarantee.

So how do business credit cards affect personal credit? If you build business credit, then the answer is: not at all!

Now You Know and Can Answer the Question of How Do Business Credit Cards Affect Personal Credit?

Increase the professionalism of your company and keep your personal and business credit separated. Learn more here about how do business credit cards affect personal credit.