In our previous post, we talked about why business credit scores matter for your business. In this article, we will talk about how to boost your business credit scores.
Unlike personal credit scores (FICO scores) that take years to build up, it typically only takes 3-6 months to build up your business credit score. However, you have to be very proactive about boosting it. It also helps if you know who will be looking up your business scores because some parties (such as banks and credit unions) have access to more data than others.
First, let’s talk about what business credit scores actually represent. Although there are many different versions of business credit scores, the primary purpose for all the scores is to indicate whether this business is paying its bills on-time. With this in mind, it’s straightforward to work out a plan. Basically, you have to tell the credit bureaus that your business exists and you are paying your bills on-time.
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The following is a step-to-step guide for establishing your business credit:
1. Get a DUNS number — Dun & Bradstreet is widely used for trade credit purposes with their Paydex Score, as mentioned in our previous post. To establish your credit history with them, you have to apply for a DUNS number to get started. You can apply for a DUNS number with your Nav account. You don’t need to apply for an account at Experian or Equifax to establish your business credit. An account get established automatically once they detect any relevant business credit activity.
2. Get lines of credit at Staples/Home Depot/UPS — Once you get your DUNS number, the next step is to open a few credit accounts and start paying your bills on time. Staples will provide any business with a credit line of $100 with net 30 payment terms for office supplies. Depending on your line of business, you can also open credit lines at Home Depot/UPS. Once these lines are established, they will report your payment records to the credit bureaus. It’s worth noting that for business credit building purposes, it doesn’t matter how big the credit line you get is; what matters is how many credit lines you establish and pay on-time. For example, two current credit lines with $100 credit limit each will help your business score higher than one credit line with a $10,000 limit.
3. Lease equipment/software — Leasing equipment/software will also help you establish your business credit. It’s hard to get large credit lines from suppliers when you are just starting out, but equipment/software vendors are more willing to grant you credit because they can either take away the equipment or turn off the software if you don’t pay them.
4. Monitor and fix inaccuracies — Business credit reports are more error-prone due to their simple name/location matching algorithm. It helps if you check your business credit report regularly to correct any mix-ups. It’s also common for lenders/suppliers to fail to remove the lien on your business after you pay them off. Monitoring the UCC filings against your business and asking your lenders/suppliers to remove any expired liens will have a positive impact on your business credit scores. It’s also worth noting that D&B won’t give your business a Paydex Score until you have at least 3 tradelines open. You can check your credit reports to see if you have enough tradelines open. If there are fewer than 3, you need to open more to get your Paydex Score published.
One surprising fact I would like to point out is that getting a business credit card doesn’t exactly help boost your business credit scores. What happens is that banks and credit unions have a special data set that’s only shared among banks and credit unions, while they also have access to all the non-financial institution credit data. (I know — it’s so unfair to other institutions!!!) Thus, when Home Depot checks your business credit, your business credit card information won’t show up in your D&B, Experian, or Equifax business credit report. But if it’s Wells Fargo checking your business credit, they will see it in all the D&B, Experian, and Equifax reports. If you think you have been building up your business credit by getting business credit cards, you might have to do more. The business credit cards will help you get a loan or credit line from a financial institution, but it doesn’t help you get alternative loans, equipment financing, or supplier credit lines, because these non-financial institutions don’t have access to that financial data. It’s very confusing but it’s quite important to understand how the system works and why you don’t get credit for what you have done under different scenarios.
It’s not hard to build up your business credit, but you must take the right steps to make it happen as mentioned above. (If you don’t have a DUNS number, please get it today. You will need it sooner or later.) Make sure you read our first post, Why Business Credit Scores Matter for Your Business, to get a good understanding of how a well-established business credit history can help your business.