How To Build Business Credit in 4 Easy Steps in 2020
Business credit is credit under your Business name. The Business builds its own credit profile & credit score. This credit is based on the business’s ability to pay, and not the business owners. “You must actively work to build business credit.” It can be done easily and quickly – much faster than building consumer credit scores. There are a ton of benefits that business credit provides, including that a credit profile can be built for a business that is completely separate from the business owner’s personal credit profile. Per SBA, credit limits on business cards are usually 10 – 100 times higher than consumer credit.
Step 1: Setting Up A Corporation or LLC
You can build business credit with almost any corporate entity type. But if you truly want to separate business credit from personal credit, your business must be a separate legal entity and not a sole proprietor or partnership. Your business entity will also matter for taxes, and for liability in the event of a lawsuit. Whether you have employees or not, your business entity must have a Federal Tax ID number (EIN). Your Tax ID number is used to open your bank account and to build your business credit profile. Your business address must be a real brick and mortar building, a deliverable physical address. It cannot be a home address, or a PO Box, or a UPS address. Some lenders will not approve and fund unless this criterion is met. You must have a dedicated business phone number that is listed with 411 directory assistance, under the business name. Lenders, vendors, credit issuers, and even insurance providers will verify that your business is listed with 411. A toll-free number will give your business legitimacy, but you must have a LOCAL business number for the listing with 411 directory assistance. Here is a great free service to get your business list
Lenders perceive 800 numbers or other toll-free phone numbers as a sign of business legitimacy. Even if you’re a single owner with a home-based business, a toll-free number provides the perception that you are an even bigger company. It’s incredibly easy and inexpensive to set up a virtual local phone number or a toll free 800 number. Here is a great service I have personally used for my business called iplum.com Click Here For a 5% discount
A cell or home phone number as your main business line could get you flagged as an un-established business that is too high of a risk. DON’T give a personal cell phone or residential phone as the business phone number. You can forward a virtual number to any cell or land line phone number.
It is important to get a company email address for your business. It’s not only professional, but it also greatly helps your chances of getting the thumbs up from a credit provider. Setting up a business email address is just too easy and inexpensive to neglect.
One of the most common mistakes when building credit for your company is non-matching business addresses on your business licenses. Even worse is when you don’t have the required licenses for your type of business to operate legally. You will need to contact the State, County, and City Government offices to see if there are any required licenses and permits to operate your type of business. Also take the time to ensure every bill you get (power bill, phone bill, landlord, etc.) has the business name listed correctly and comes to the business address. Take the time to verify that main agencies
(State, IRS, Bank, and 411 national directory) have your business listed the same way and with your Exact Legal Name.
Step 2: Getting Your Business Credit Reports
Go to the D&B website and get your free D-U-N-S number. This is how D&B gets your company into their system, in order to generate a PAYDEX score. If you have no D-U-N-S number, then there is no record and there can be no PAYDEX score.
Business Credit reports are offered by Experian, Dun & Bradstreet, and Equifax. You will first want to get a copy of your business credit reports to see what is being reported before you start your business credit building.
Know what is happening with your credit. Make sure it is being reported. Address errors as soon as possible. Get in the habit
of checking credit reports and digging into details, not just scores.
You won’t need to get reports with all three, but you should at least have monitoring set up with Dun & Bradstreet, and possibly Experian. Smart Business credit reports from Experian cost $37 – 175. With these reports you can find out how many trade lines are reporting, see if you have a business credit score assigned, see if you have an active Experian
Business Profile, and check on recent inquiries.
It typically takes more time to create a file with Equifax Small Business than D&B and Experian. This is because not a lot of vendors and credit issuers actually report to Equifax. Instead, most report to Experian or D&B. This is also why it’s important to apply with the credit providers who report to Equifax when you find them. You can get set up for
Equifax credit monitoring for as little as $19.95 monthly.
Dun & Bradstreet offer a CreditMonitor product where you can get unlimited access to your D&B reports and scores for $49 monthly. IMPORTANT NOTE, if you do end up getting set up for this, you might get a call from Dun & Bradstreet Credibility. Keep in mind this is not actually Dun & Bradstreet; this is a completely separate privately owned
DO NOT purchase their credit builder program, no matter what they tell you. This is NOT something you need and NOT something you should pay for. This program only adds trade references to your report, but instead you will be building your business credit using real usable credit.
Fix Business Credit
While monitoring, you may find errors in your reports. You can update errors or incomplete data as follows:
● D&B: https://iupdate.dnb.com/iUpdate/viewiUpdateHome.htm
● Experian: experian.com/small-business/business-creditinformation.jsp
● Equifax: equifax.com/business/small-business
Step 3: Building Business Vendor Credit
A vendor line of credit is when a company (vendor) extends a line of credit to your business on Net 15, 30, 60 or 90 day terms. This means that you can purchase their products or services up to a maximum dollar amount and you have 15, 30, 60 or 90 days to pay the bill in full. So if you’re set up on Net 30 terms and were to purchase $300 worth of goods today, then that $300 is due within the next 30 days.
When your first Net 30 account reports your trade line to Dun & Bradstreet, the DUNS system will automatically activate your file if it isn’t already. This is also true for Experian and Equifax.
You need to have a total of at least five (5) Net 30 day pay accounts reporting, and eight (8) is even better. Some vendors require an initial prepaid order before they can approve your business for terms. Your vendors do not necessarily have to serve 100% of your business needs.
Starter Vendor #1: Uline Shipping Supplies
Find them online at uline.com. They sell shipping, packing, and industrial supplies, and they report to
D&B. You must have a D-U-N-S number, 2 references, and a bank reference. Your first few orders may need
to be prepaid to initially get approved for Net 30 terms.
Starter Vendor #2: Quill
Find them online at quill.com. They sell office, packaging, and cleaning supplies. They report to D&B and Experian. With reports to 2 separate credit reporting agencies, you get 2 credit experiences with them! You must place an initial order first unless your D&B score is established. Usually they put you on a 90 day prepayment schedule. If you order
items each month for 3 months, they typically approve you for a Net 30 Account.
Starter Vendor #3: Gempler’s
Find them online at: gemplers.com. They sell work supplies and products. They report to Dun and Bradstreet. Place your initial order for over $50 and select the Invoice me option. Then they will pull your credit. If you are not approved, then make sure to prepay for the order. Keep purchasing and choosing the Invoice me option until you are
approved for a Net 30 account.