Your Business Needs Corporate Credit
Corporate credit is credit in a company’s name. It doesn’t tie to an entrepreneur’s personal credit, not even when the owner is a sole proprietor and the sole employee of the business.
Consequently, an entrepreneur’s business and consumer credit scores can be very different.
The Advantages
Because company credit is independent from individual, it helps to protect an entrepreneur’s personal assets, in case of litigation or business bankruptcy.
Also, with two distinct credit scores, a business owner can get two separate cards from the same vendor. This effectively doubles purchasing power.
Another benefit is that even startups can do this. Going to a bank for a business loan can be a recipe for frustration. But building business credit, when done right, is a plan for success.
Consumer credit scores are dependent on payments but also additional considerations like credit usage percentages.
But for corporate credit, the scores actually merely depend on whether a small business pays its debts on a timely basis.
The Process of Building Corporate Credit
Building small business credit is a process, and it does not happen without effort. A company needs to actively work to establish small business credit.
That being said, it can be done easily and quickly, and it is much quicker than establishing individual credit scores.
Merchants are a big aspect of this process.
Undertaking the steps out of sequence will lead to repetitive rejections. Nobody 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 denial 100% of the time.
Corporate Credit and Fundability
A small business has to be fundable to lenders and merchants.
Therefore, a small business will need a professional-looking web site and e-mail address. And it needs to have site hosting bought from a vendor like GoDaddy.
Plus, business phone and fax numbers ought to have a listing on ListYourself.net.
Likewise, the company telephone number should be toll-free (800 exchange or comparable).
A business will also need a bank account dedicated only to it, and it must have all of the licenses essential for operation.
Licenses
These licenses all must be in the perfect, correct name of the business. And they need to have the same company address and phone numbers.
So keep in mind, that this means not just state licenses, but potentially also city licenses.
Learn more here and get started toward building business credit attached to your company’s EIN and not your SSN.
Working with the IRS
Visit the IRS website and acquire an EIN for the business. They’re totally free. Select a business entity such as corporation, LLC, etc.
A small business can get started as a sole proprietor. But they will more than likely wish to change to a sort of corporation or an LLC.
This is in order to limit risk. And it will take full advantage of tax benefits.
A business entity will matter when it pertains to taxes and liability in the event of litigation. A sole proprietorship means the owner 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, be sure to incorporate.
If you do not, then your personal name is the same as the business name. Consequently, you can end up being directly responsible for all company financial obligations.
Also, according to the Internal Revenue Service, using this arrangement there is a 1 in 7 possibility of an IRS audit. There is a 1 in 50 chance for corporations! Steer clear of confusion and considerably lower the chances of an Internal Revenue Service audit as well.
Beginning the Corporate Credit Reporting Process
Start at the D&B website and get a totally free D-U-N-S number. A D-U-N-S number is how D&B gets a company 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 sites for the company. You can do this at www.creditsuite.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.
In this manner, Experian and Equifax will have activity to report on.
Vendor Credit Tier
First you ought to build 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 corporate credit score.
And with an established business credit profile and score you can begin to get credit in the retail and cash credit tiers.
These kinds of accounts 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 preliminary credit when you have none now. Terms are typically Net 30, versus revolving.
Therefore, 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 must be paid in full within 30 days. 60 accounts have to be paid completely 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 kick off your business credit profile properly, 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.
Vendor Credit Tier – It Makes Sense
Not every vendor can help like true starter credit can. These are merchants that will grant an approval with a minimum of 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 one time to these vendors. So, this is to demonstrate you are trustworthy and will pay punctually. Here are some stellar choices from us: https://www.creditsuite.com/blog/5-vendor-accounts-that-build-your-business-credit/
Accounts That Don’t Report
Non-Reporting Trade Accounts can also be helpful. You do want trade accounts to report to at the very least one of the CRAs. Still, a trade account which does not report can nonetheless be of some worth.
You can always ask non-reporting accounts for trade references. And credit accounts of any sort will help you to better even out business expenditures, thereby making financial planning easier. These are providers like PayPal Credit, T-Mobile, and Best Buy.
Retail Credit Tier
Get 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs. And then progress to the retail credit tier. These are service providers which include Office Depot and Staples.
Only use your SSN 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 such example 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.
Fleet Credit Tier
Are there 8 to 10 accounts reporting? Then move to the fleet credit tier. These are service providers like BP and Conoco. Use this credit to buy fuel, and to repair, and maintain vehicles. Only use your SSN 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 need to see a PAYDEX Score of 78 or higher and a 411 business phone listing.
Shell may claim they want a certain amount of time in business or profits. But if you already have adequate vendor accounts, that won’t be necessary. And you can still get approval.
Learn more here and get started toward building business credit attached to your company’s EIN and not your SSN.
Cash Credit Tier
Have you been responsibly managing the credit you’ve gotten up to this point? Then move onto the cash credit tier. These are companies like 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).
Additionally, they want you to have an established company.
These are companies 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 attainable.
Learn more here and get started toward building business credit attached to your company’s EIN and not your SSN.
Monitor Your Corporate Credit
Know what is happening with your credit. Make sure it is being reported and address any inaccuracies as soon as possible. Get in the practice of taking a look at credit reports. Dig into the particulars, 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: www.creditsuite.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 Records
Update the data if there are mistakes or the details is incomplete. At D&B, go here: 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.
Fix Your Corporate 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 fixed. But the CRAs normally 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 mistakes commonly means you send a paper letter with copies of any proof of payment with it. These are documents like receipts and cancelled checks. Never send the original copies. Always send copies and keep the original copies.
Fixing credit report errors also means you precisely itemize any charges you contest. 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.
Dispute your or your company’s Equifax report by following the directions here: www.equifax.com/small-business-faqs/#Dispute-FAQs.
You can dispute errors on your or your business’s Experian report by following the instructions here: www.experian.com/small-business/business-credit-information.jsp.
And D&B’s PAYDEX Customer Service phone number is here: www.dandb.com/glossary/paydex.
A Word about Corporate Credit Building
Always use credit smartly! Never borrow more than what you can pay off. Monitor balances and deadlines for repayments. Paying off punctually and fully will do more to increase corporate credit scores than just about anything else.
Establishing company credit pays. Great business credit scores help a business get loans. Your loan provider knows the small business can pay its financial obligations. They recognize the business is for real.
The company’s EIN connects to high scores and loan providers won’t feel the need to require a personal guarantee.
Takeaways
Corporate credit is an asset which can help your company in years to come. We can help you get started toward growing corporate credit.
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