Business credit reports to the business credit reporting agencies, not the consumer reporting agencies. As business credit is used it has no adverse impact on the owner’s consumer credit because it’s not reported to consumer agencies. This means utilizing the account, even over 30%, won’t have any adverse impact on the personal credit scores and there are no inquires on the personal credit when you apply for business credit as long as you don’t supply your SSN.
10% of your total consumer credit score is based on inquiries so if you are using your personal credit to apply for business loans and credit, your scores will go down as a result of those inquiries. Plus those inquiries can remain on your credit for an extended period of time affecting your ability to borrow more money. Some unsecured business lending sources won’t even lend you money if you have 2 inquiries or more on your personal credit reports within 6 months.
30% of your total consumer credit score is based on utilization so if you use your personal credit to get credit cards for your business, if you use those cards you will lower your scores. Using more than 30% of your limit WILL result in a score decrease so if your limit is $1,000, having a balance above $300 lowers your scores. This means 40% of your total score is damaged just by applying and using the credit you obtain using your consumer scores with true business credit, 0% of your score is affected.
Personal Credit Scores are based on 5 factors
Payment History 35%
Amoutnts Owed 30%
Length of Credit History 15%
Accumulation of New Credit 10%
Credit Mix 10%
Business credit scores are primarily based only on whether the business pays its bills on time. The D&B Paydex score is the most widely used business credit score, and it’s solely based on payment history.
The Equifax Small Business Risk Score is also based solely on payment history. The Experian Intelliscore is primarily based on payment history, about 65% of the score is based on how people pay.
D&B’s Paydex Score are based on Payment History
Expect payment may come early 100
Payment is prompt 80
Payment comes 14 days beyond terms 70
Payment comes 21 days beyond terms 60
Payment comes 30 days beyond terms 50
Payment comes 60 days beyond terms 40
Payment comes 90 days beyond terms 30
Payment comes 120 days beyond terms 20
To get good scores with the business CRAs all you need to do is get some credit that reports to the business credit reporting agencies. Get the credit, use the credit, then pay the bills timely, preferably as early after you make the purchase as possible. Early payments alone mean you’ll get a great credit score with a great score you’ll then be able to get high-limit accounts quickly. Consumer credit scores are made up of 5 factors so it takes years of well-disciplined borrowing to get really good scores. But, business credit scores can be built much faster, because all that’s needed is to have accounts reported with good payment histories. With consumer credit, someone has to have your permission to pull your credit reports. This is required under the Fair Credit Reporting Act which requires that someone have your Permissible Purpose to pull your personal credit.
If someone pulls your credit without your permission, they can pay $1,000 fine or more. With consumer credit, only certain organizations can get the ability to even access your credit reports such as: Banks, Auto dealers, Mortgage brokers and Others licensed to lend money. With business credit, this information is made public, which means ANYONE who wants your business credit reports can easily and cheaply get it. Think about some of the people who can see your reports as they wish whenever they want, customers, prospects, suppliers and others who you might do business with competitors, and ANYONE else who wants it.
Here is some of the information they can easily see about your business: amount of tradelines, credit score, high credit limits, past payment performance, employees, revenue and much more is available to anyone who wants it. All that’s needed to pull an established credit report is the business name. If a company isn’t well-established, a business address is needed. So, with only a business name and address, and without needing permission, anyone can pull your business credit reports.
Keep monitoring your reports regularly to see what others can see about you. And keep building your business credit so you can have a credible image portrayed for anyone who wants to see your credit in the future… especially those who lend money or issue credit.
When you put your SSN on a credit application, you are almost always providing a personal guarantee. This means you are personally liable for your business debts so if you were to default on one of these obligations, the creditor will pursue your business assets first, then they’ll come after your personal assets including…your home, your cars, your stocks and bonds, your bank accounts, and any and all other assets.
Business owners don’t expect to fail but unfortunately, 90% do fail. It makes no sense to put you and your family’s financial future in jeopardy when you know going in that you have a 90% possibility of ruining it. Remember, many times the reasons a business might fail have nothing to do with you, or things you can control… such as shifts in the economy.
There is no question, starting and running a business IS risky. This is why most conventional banks make it so hard to get a loan so DON’T use a personal guarantee unless you have to. With many business loans you will need to, but with credit you DON’T need to as long as you build business credit. Which would you buy of these two businesses that have been in business for 5 years and are the same in every way except company A has no business credit profile and score and is being recommended for no credit. Company B has 10 trade lines reporting, an excellent business credit profile and score, $52,000 in available credit to help with growth, and is being recommended for $42,000 in credit from the business reporting agencies.
Anyone who has sold or bought a business will tell you of the importance of business credit. Now that you know how easy extensive credit and financial information is to get for a company, if you were a buyer wouldn’t you get it?
Would you want to buy this company from what you see on the business report?
Is the company “established”, do they pay their bills, do they look like a successful company?
When you apply for financing or credit for your business, your business credit IS reviewed. Your business credit quality will then determine if you are approved or denied, the amount of credit or loan you are applied for and the terms you receive.
There is no Fair Credit Reporting Act in the business world that requires those who review your credit to notify you that they did, or that it was used in their lending decision so even though it’s always reviewed, most business owners have no idea that it is. But even HIGH RISK merchant cash advance loan decisions are partially based on business credit quality and you can NOT get a SBA loan without having established business credit.
Another benefit of business credit is that it more than DOUBLES borrowing ability.
You already have consumer credit, now you can have a whole other credit profile with business credit also. Having business credit is the only legal way you can have two credit profiles. You can’t go into Staples and get a consumer credit, then go in the next day and get another one. You can do this with business credit though. You can go into Staples and get a consumer credit card, then go in the next day and get a business credit card with them.
So, business credit is the only way you can double the amount of credit you have access to, because you have two credit reports. When you have access to more store and cash credit cards, you also have access to a lot more useable money.
Per SBA business credit limits are 10-100 times that of consumer limits so not only can you get business credit fast, you can also get credit with VERY high limits. This is because businesses have a greater need for credit than a consumer does, this is referred to as credit capacity. You may never need to get 10k in credit with Dell for home computers, but you can easily need this much or more for a business.
Obtaining business credit radically increases your available credit. An average Staples card limit on the consumer side might be $3,000, but in the business world it might be closer to $30,000. It’s actually VERY common to get credit cards with limits of 10k or more within 2-3 months from starting to apply for credit. This is impossible to accomplish with consumer credit.
Here are some actual approvals from customers’ months into business credit building:
Office Depot $15,000
Business credit can be obtained VERY quickly. You can get approved for initial vendor credit to help your business grow IMMEDIATELY. That credit will typically report within 30-90 days. Once reported you will then have reported tradelines which in turn give you an established business credit profile and score. Once your profile is established in 90 days or less, you can then start getting real useable revolving store credit cards. Within 120-180 days you can then get real cash credit such as Visa, MasterCard, Discover, and AMEX credit you can use anywhere.
Most conventional and private lenders won’t lend to companies without financials and who have been open 3 years or more. The most popular cash flow type of financing requires one year in business and steady revenue. Most consumer credit card approvals are based on personal income but with business credit, even a startup can get loads of new credit without any of these items.
Business credit is perfect for businesses that don’t have or want to show financials. Let’s face it, we write off all expenses in a business we can. This leaves a smaller net profit, which is what most lenders and investors look at most.
Business credit doesn’t look at financials, or bank statements. A business even with no cash flow can be approved for high limit cards, helping them grow their cash flow. And tax returns aren’t looked at either, so even if the business shows a loss they can still be approved.
Most business lending requires collateral. This is because most businesses fail, and the risk of repayment of lent money is VERY high. This is why most conventional lenders make it so hard to get money; they aren’t setup for this type of risk. This is also why SBA requires ALL business assets, and even personal assets, be used as collateral. Business credit is one of the only ways to get money without providing collateral to offset the risk. 90% of the general population knows nothing about business credit. Now that YOU do, you have a HUGE competitive advantage. It’s much easier to grow a business with access to credit. You can test advertising easier and make some mistakes without risking it all. When you have access to capital you have a big advantage over your competitors who don’t.
Let’s face it, most businesses fail and according to SBA the two biggest reasons for failure are lack of access to capital and management mistakes. When you have more money, you can afford to make more mistakes so having access to capital helps save you from BOTH of the main reasons that most businesses fail.
For more information on business credit funding or, business credit, visit us here today.