Like many entrepreneurs, the retail store owner I spoke with recently is trying to move away from using personal credit to finance her business, and to help her do that, she’s started the process of building business credit. “I’ve got a ‘Duns number’,” she told me, “but I’m confused. What do I do next?”
Getting a free D-U-N-S number is one of the first steps in the credit-building process. It’s the identifying number for a business in the Dun & Bradstreet commercial credit database, and your business must be assigned one in order to create a business credit profile in their system. In addition to building business credit, D-U-N-S numbers may also be required when applying for government contracts or grants or before doing business with other businesses.
The next, and perhaps most crucial, step in the process of building business credit is to establish credit references that will appear on your credit report with Dun & Bradstreet and other commercial credit reporting agencies. Payment history is the most important factor that influences business credit scores and without any accounts reporting it’s difficult for a credit bureau to calculate a business credit score. In fact, to calculate a Paydex Score— one of D&B’s most well-known credit scores— D&B says a business needs at least two companies reporting at least three credit experiences on its D&B credit report.
How do you get those accounts?
One option is to get a small business credit card that reports to D&B, along with other major business credit bureaus such as Equifax, Experian and the SBFE. If you have good personal credit and sufficient income from all sources, qualifying shouldn’t be too difficult. This guide explains which small business credit cards report to business credit.
If you can’t qualify for a business credit card at this time, you aren’t necessarily out of luck though.
There are several companies that sell supplies to businesses and make it very easy to set up an account “on terms” where you order the item and pay for it later. The most common arrangement is “net-30” terms where you must pay the bill within 30 days of the invoice date. These vendors offer a wide variety of products that businesses regularly use, from shipping and office supplies to furniture and equipment. They aren’t likely to check the owner’s personal credit either. The initial credit limit may be small but as you prove you’re a reliable customer who pays on time, you can get that increased. Here are three vendors that report to business credit.
Entrepreneurs sometimes ask me about adding accounts they already pay to their business credit reports. In the past that process has been somewhat cumbersome as the lender or vendor must set up an account with the business credit bureaus to report customer information on a regular basis.
A company called eCredable also helps small businesses get information about certain bills they already pay— such as cell phone, power and internet bills— added to their business credit reports. For a monthly fee, eCredable Lift will verify qualifying bills and then report them to CreditSafe and Ansonia business credit reports. They also report the monthly fee they charge to Dun & Bradstreet as a tradeline.
Once you have several accounts appearing on your business credit report, the next step is to make sure you pay on time. Again, payment history is the most important factor when business credit scores are calculated. You don’t want to get busy running your business and forget to pay a bill; that can set you back quickly in your efforts to move away from personal credit.
Entrepreneurs are often pleasantly surprised at how soon they can see their business credit go from “no credit score” to a good credit score, just by getting a few accounts that report, and paying them on time. It takes a little effort to get started, but your business will benefit in the long run.