Building your credit profile with Equifax Small Firm helps to legitimise your business and position it for future sources of credit. Continue reading to learn how to develop Equifax Small Company credit and why it’s such a vital step in keeping good business credit.
Credit Report for Small Businesses by Equifax
The first step in establishing Equifax Small Business credit is to create an Equifax Small Business profile on their website. You already have a business credit profile if you conduct business with trade partners that report to Equifax Small Business. You are establishing business credit after your company has been added to their database.
Ascertain if your company is a distinct legal entity. We advise establishing a limited liability business (LLC).
For an Employer Identification Number (EIN), contact the Internal Revenue Service (IRS) (EIN). This is required to establish a business bank account.
Open a business bank account with your company’s precise legal name. Check that it corresponds to the name on your LLC application.
Get a business credit card from a company like Divvy that reports to all of the main credit monitoring companies and helps you develop credit with every purchase.
Create a company phone number by using a 411 directory listing. This demonstrates to lenders that you are a respectable firm.
Set up net-30 accounts with suppliers that submit their invoices to Equifax Small Business.
Check your company credit profile using a tool like Nav to guarantee correct reporting, monitoring your score, and future trustworthiness.
Equifax Small Firm employs a three-score rating system to assist investors and lenders in selecting whether or not to give credit to a business. Each rating system uses a distinct numeric range to assess a company’s creditworthiness. The three scores and their associated ranges are as follows:
Payment Index Rating (0-100)
Score of Business Credit Risk (101-992)
Business Failure Rating (1000-1880)
The Payment Index Score assesses a company’s payment history over the previous year. In this statistic, “days past due” is the primary driver. The Business Credit Risk Score assesses the likelihood that a company will fail to meet its commitments for ninety days or more. The Business Failure Score assesses the likelihood that a company will collapse during the next twelve months; the higher the score, the better (i.e., less risk for the lender).
Establishing Credit for Your Company
Business credit lines, like personal credit, are reported to business credit reporting agencies such as Equifax Small Business. Here’s how to get and keep credit for your company.
Step 1: Obtain an EIN for your company.
EIN is an acronym that stands for Employer Identification Number. The EIN is a number provided to your company by the IRS for tax reasons. Before doing business with your organisation, your bank and associated suppliers may also demand this information.
If you’re just starting out, you may be asking how to get an EIN number. Fill out IRS Form SS-4 to receive an EIN, or just finish the procedure online.
Caution: Some less-than-trustworthy websites may convince you to assume that acquiring an EIN costs money. This is untrue and deceptive, since the
IRS does not charge for obtaining an EIN.
Step two: Create a business bank account.
A business bank account is required for each new business. There are various advantages to creating a business bank account, including:
Keep personal and company finances separate to maintain the corporate veil.
Make accounting easy.
To take credit card payments, open a merchant account. You should also obtain a point-of-sale (POS) system.
Business banking is required if you subsequently decide to form an LLC, hire a partner, or sell your company.
A company bank account is essentially required. One significant disadvantage of utilising a personal bank account for your company is that you will not contribute to your Equifax Small Business credit ratings. The credit information will appear on your personal credit record rather than your company credit report.
Step 3: Establish credit lines with significant initial merchants.
Establishing lines of vendor credit with major organisations is one of the quickest and simplest methods to grow your Equifax Small Business credit. Companies that may assist you in establishing vendor credit include:
www.uline.com (shipping supplies and office equipment)
www.quill.com (office, cleaning, and packaging supplies)
www.Grainger.com (industrial supplies like hardware, power tools, etc.)
Net-30 suppliers may impose a minimum order quantity before reporting to the business credit agencies, or prepayment for new enterprises wishing to build business credit.
Step 4: Make timely payments.
This basic but critical step is sometimes overlooked by new company owners in the excitement of operating a firm. Making timely (or early) payments is a key criterion used by creditors to assess the risk of giving credit to firms. Keep meticulous financial records to avoid missing payments by mistake.
Step 5: Keep an eye on your company’s credit record.
Request a report from Equifax Small Business to stay up to date on your company’s credit standing. You may use this report to ensure that your company’s information is accurate and up to date.
Equifax Small Company also provides a number of premium services to help you secure and develop your business. You may choose among services that provide access to your business credit report as well as services that assist safeguard and manage your company credit.
Best Practices for Business Credit
Most business executives agree on the following effective methods for increasing or raising a company’s credit rating:
Set up credit lines with various vendors: This allows you to exhibit several trade lines reporting on your Experian Business credit report. This may help your company’s credit score grow more quickly.
Pay your bills on time: As previously stated, this will have a significant influence on your credit score reporting.
Pay using your business bank account only: This ensures that the transactions are recorded to Experian Business and the other business credit agencies and are not included on your personal credit report.
Prioritize record-keeping: This is essential for tax considerations as well as your company’s general financial performance.
The Most Common Credit Mistakes and How to Avoid Them
When attempting to create solid company credit, new business owners often make basic errors that may cost them dearly. Some essential instances to be aware of are as follows:
Applying for many company credit cards at the same time is not a good idea. Banks and other lenders see credit card applications as evidence that your company is in financial distress and need several sources of cash.
Never use corporate credit to buy personal stuff. This technique guarantees that you maintain the company veil, which protects your personal assets. Furthermore, it keeps financial documentation cleaner and simpler to handle when tax season arrives.
Do not overextend your credit by utilising credit lines to pay off other creditors. This may lead to a chain reaction of financial deception, high-interest payments, and increasing debt. Ideally, you should limit your company credit to roughly 30% of your credit lines.
Employees should not have unfettered access to corporate credit lines. You run the danger of even the most ostensibly devoted employee utilising this company credit line as if it were free money. Most banks allow you to establish spending limitations for employees on your company accounts and get alerts when transactions occur.
IMPORTANT: Make a monthly payment to all debtors. This guarantees that you continue to establish solid company credit.