Written by Janet Gershen-Siegel
How to Build Up Company Credit and Beat Your Competitors
Do you know how to build up company credit? We break down just what you need to know and show you what will work.
Building company credit means that your company obtains chances you never felt that you would. You can get brand-new equipment, bid on real estate, and cover the company payroll. And this is even when times are a bit lean.
This is especially helpful in seasonal companies, where you can go for several months with solely low sales.
As a result of this, you ought to tackle and start to build up company credit. Enhance and maintain your scores and you will have these possibilities. Do not, and either you do not get these opportunities, or they will cost you a lot more.
And no small business owner wants that. You need to recognize what affects your company credit before you can make it better.
Credit History Length Matters
This is essentially the length of time your company has been working with company credit. Obviously newer businesses will have very short credit histories. Though there is not so much you can specifically do about that, do not worry.
Credit reporting agencies will also review personal credit score and your personal background of payments. If your individual credit is excellent, and in particular if you have a reasonably extensive credit history, then personal credit can come to the rescue of your company.
That is, if you didn’t just get your first personal credit card yesterday.
Obviously, the reverse is also right. If your private credit history is bad, then it will impact your company credit scores until your business and individual credit can be separated.
Your Payment History is Important
Late monthly payments will have an effect on your company credit score for a good seven years. If you pay your small business debts off, as speedily as possible and as fully as possible, then you can make a very real difference when it relates to your credit scores.
Make sure to pay on schedule and you will reap the benefits of promptness.
Your Personal Credit Can Affect Your Corporate Credit
Are you having a bad business year? Then it could land on your consumer credit score. And in the event that your business has not been in existence for too long, it will directly impact your business credit.
However, you can unlink them both by taking measures to separate them. Say, if you get credit cards just for your company, or you open up business checking accounts and other bank accounts, then the credit reporting agencies will begin to treat your consumer and company credit separately.
Also, be sure to incorporate, or at the very least file a DBA.
You can also pay for your company’s statements with your small business credit card or checking account. And make sure it is the company’s full name on the bill and not your own.
Do Not Let Your Credit Utilization Rate Damage Your Small business
Your credit utilization rate is the amount on credit. It is then divided by total available credit. Lenders commonly do not want to see this go above 30%. So, for every $100 in credit, do not borrow on in excess of $30 of that.
If this percent is increasing, you’ll need to spend down and pay off your financial debts prior to borrowing more.
The Credit Reporting Bureaus Can Just Plain Get It Wrong
Just like each entity around, credit reporting bureaus like Equifax and Experian are only as good as their information. If your firm’s name is like another’s, or your name is a lot like another entrepreneur’s, there could be some mistakes. So, monitor those reports, and your company report at Dun & Bradstreet, PAYDEX.
Stay on top of these reports and dispute charges with paperwork and clear-cut communications. Do not just allow them to stay incorrect! You can repair this!
And while you’re at it, monitor the credit reporting bureau which solely handles individual and not small business credit, TransUnion. If you do not know how you can pull a credit report, do not stress. It’s easy.
Exactly How to Build Up Company Credit
Establishing small business credit is a process, and it does not occur automatically. A corporation has to proactively work to build company credit. That being said, it can be done easily and quickly, and it is much faster than developing personal credit scores.
Vendors are a big aspect of this process.
Doing the steps out of sequence will lead to repetitive rejections. 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 rejection 100% of the time.
Small Business Credibility
A company needs to be reputable to lenders and merchants. That’s why, a corporation will need a professional-looking website and email address, with website hosting bought from a company like GoDaddy. And also, company telephone and fax numbers need to have a listing on 411.com.
At the same time the business telephone number should be toll-free (800 exchange or similar).
A company will also need a bank account dedicated purely to it, and it needs to have every one of the licenses necessary for operating. These licenses all have to be in the perfect, accurate name of the business, with the same corporate address and phone numbers. Note that this means not just state licenses, but possibly also city licenses.
Working with the IRS
Visit the Internal Revenue Service website and acquire an EIN for the company. They’re totally free. Choose a business entity like corporation, LLC, etc. A company can start off as a sole proprietor but will more than likely want to change to a form of corporation or partnership to decrease risk and make the most of tax benefits.
A business entity will matter when it pertains to tax obligations and liability in case of litigation. A sole proprietorship means the owner is it when it comes to liability and tax obligations. No one else is responsible.
If you operate a corporation 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 small business name. As a result, you can wind up being personally liable for all small business debts.
In addition, per the IRS, with this arrangement there is a 1 in 7 chances of an IRS audit. There is a 1 in 50 possibilities for corporations! Avoid confusion and drastically decrease the chances of an Internal Revenue Service audit at the same time.
Beginning the Business Credit Reporting Process
Start at the D&B website and obtain a cost-free DUNS number. A DUNS number is how D&B gets a business 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 websites for the company. You can do this at Business Credit 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.
First you ought to establish trade lines that report. This is also known 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 acquiring 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 to start with, what is trade credit? These trade lines are creditors who will give you preliminary credit when you have none now. Terms are commonly Net 30, rather than 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.
Net 30 accounts must be paid in full within 30 days. 60 accounts must be paid fully 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 made use of.
To begin your business credit profile the right way, you should get approval for vendor accounts that report 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 in the same way true starter credit can. These are vendors 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.
But you may need to apply more than one time to these vendors, and you may have to purchase some things you don’t need, to validate you are trustworthy and will pay promptly. Consider giving unwanted items to charity.
Revolving Store Credit
Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, move onto revolving store credit. These are companies like Office Depot and Staples. These companies are more likely to have things you need.
Use the corporation’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 higher.
Are there 8 to 10 accounts reporting? Then progress to fleet credit. These are businesses such as BP and Conoco. Use this credit to purchase, repair, and take care of vehicles. Make certain to apply using the company’s EIN.
Have you been responsibly managing the credit you’ve gotten up to this point? Then progress to cash credit. These are businesses such as 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 typically 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 sure it is being reported and deal with any inaccuracies ASAP. 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: Credit Monitoring. Update the relevant information if there are mistakes or the details is incomplete.
So, what’s all this monitoring for? It’s to challenge any inaccuracies in your records. Errors in your credit report(s) can be fixed. But the CRAs often want you to dispute in a particular way.
Disputing credit report mistakes commonly means you mail a paper letter with copies of any proofs of payment with it. These are documents like receipts and cancelled checks. Never mail the original copies. 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 clear as possible. Be specific about the concerns with your report. Use certified mail so that you will have proof that you mailed in your dispute.
A Word about How to Build Up Company Credit
Always use credit sensibly! Never borrow beyond what you can pay off. Keep track of balances and deadlines for repayments. Paying off promptly and fully will do more to boost business credit scores than nearly anything else.
Growing corporate credit pays. Excellent business credit scores help a business get loans. Your loan provider knows the small business can pay its financial obligations. They know the company is for real. The company’s EIN connects to high scores, and lenders won’t feel the need to call for a personal guarantee.
Business credit is an asset which can help your small business for many years to come.
Takeaways for How to Build Up Company Credit
Once you know what impacts your corporate credit scores, you are that much closer to starting to effectively build up company credit. Learn more here and get started and build up company credit attached to your company’s EIN and not your SSN.