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Learning the fundamentals of building
Business Credit
There are four basic steps to building a strong business credit portfolio.
Step One Corporate Structure
Choosing the correct corporate structure is critical to the success of your business and will
determine your ability to successfully build corporate credit under your business name. The
most important thing to know is you must be incorporated to build business credit. Creditors will
not give unincorporated businesses the time of day, much less a line of credit. Most business
owners will select one of four different types of corporate structures: LLC, C-Corp, S-Corp, or
Non-Profit LLC, which is a hybrid between a corporation and a limited partnership. Use this type
of filing, if your company is going to have 20 or less employees. LLC's are not taxed at the entity
level, rather the taxes are passed through to the individual shareholders and are paid on the
individual shareholder's tax returns under Capital Gains. This makes paying your corporate taxes
very easy. LLC's also offer protection from liability just like corporations.
C-Corps are corporations that are a separate legal entity from the business owner(s) and thus
provide full liability protection. They do, however, face double taxation; once at the corporate
level and again through the shareholders on dividends paid to them by the corporation.
S-Corps are corporations that have a special tax designation from the IRS. S-Corps are not taxed
at the corporate level. Like LLC's, the taxes are passed through to the individual shareholders
and are paid by the shareholders on their individual tax returns.
Non-Profits: are corporations and thus a separate legal entity providing full liability protection of
assets. Most non-profits will also have a 501(C)3 rating from the IRS granting them a tax exempt
status.
Step 2 Registering with the Credit Bureaus
The second step in building corporate credit is to register your company with the top credit
bureaus used in business credit. The top three credit bureaus used in business credit are Dun &
Bradstreet, Business Experian, and Business Equifax. Dun & Bradstreet is the top business credit
bureau, so it is best to set up your profile with them first. They will assign a DNB (DUNS) number
for your business and a password so that you can assess your credit profile. After you have
entered your business information and set up your business credit profile, you will repeat these
steps for Experian and Equifax. You will need to have your incorporation paperwork and EIN num-
ber from the IRS to complete your credit profiles at the credit bureaus.
Step 3 Assessing Credit Reports
After you have successfully set up your credit profiles at the top three credit bureaus, you will
need to pull your initial credit reports. Although your credit profiles will be initially blank, check
your credit reports for accuracy and update any missing or wrong information.
Step 4 Obtaining Business Credit
Now that you are incorporated and have active credit profiles that are true and accurate, you
can now begin opening accounts under the business name. NEVER allow your personal
information to be used when applying for accounts. Using your personal information (date of
birth, Social Security Number, etc) is the same legally as giving a personal guarantee on that
account. Personal guarantees equate to personal credit. Apply for accounts using your EIN num-
ber and/or DNB number instead of using your Social Security number. Start with small accounts
such as Net-30 vendors.
Once you have 2 Net-30 accounts reporting to your credit profiles, you can advance to low-end
revolving credit lines. (To have your initial credit score issued by Dun & Bradstreet, you will
need to have 4-5 accounts reporting with a two month payment history on each account. This
credit score is called your PAYDEX score and ranges from 0-100. An 80 PAYDEX score is
equivalent to a 750 FICO score used in personal credit). We suggest you obtain 4 low-end
revolving credit lines before advancing to your mid-range revolving creditors. Repeat the same
process with your mid-range revolving creditors, obtaining four mid-range accounts. Once you
have completed your mid-range revolving creditors, you can advance to your bank-level credit
card issuers such as MasterCard, VISA, Discover, and American Express business acounts. Using
this formaula will ensure each creditor is extending your business the highest credit limit
possible. After you have completed all four tiers of credit, your company will now be in line for
bank-level financing and will also qualify for most leasing programs nationwide.
How to build business credit using
Dun & Bradstreet
By J. Michael Young
SUN BUSINESS COLUMNIST
Business owners are often likened to Olympic athletes - they’re always jumping hurtles to get to
the finish line.
Those who are able to bear obstacles and reach the finish line are rewarded with business
credit.
But, how does one win the ultimate prize of receiving a favorable rating with Dun & Bradstreet?
First, Dun & Bradstreet Corporation (D&B) provides credit information on businesses and
corporations. They are known for its D-U-N-S (Data Universal Numbering System), a nine digit
number
containing business information that is assigned to over 100 million companies worldwide.
Information contained in the reports include, extended credit terms, trade experiences,
principal's history, financials (including net worth, cash on hand, AR/AP, etc..), UCC filings,
public re-
cords, liens, suits, volume sales, employee number, terms to liabilities, start date, and even what
type of building the company occupies.
Entrepreneurs looking to establish business credit are more likely to obtain it, if they have a
favorable D&B report.
A DUNS number can be gotten in five days or less by calling (866) 785-0428.
Please note that getting a D-U-N-S Number alone will not establish a D&B credit file for your
company. If you are requesting a D-U-N-S Number because you need to show others that your
business is creditworthy, you will probably need to establish a credit file. To establish a credit
file and obtain a D-U-N-S Number at the same time, get CreditBuilder.
CreditBuilder is ideal for new businesses that need to establish their credit rating. The basic
service costs $329. It assigns you with a D-U-N-S® Number within 24 hours and establishes a basic
credit file on your business. Other services offered under the basic service include, a basic set
of D&B scores and ratings (does not include the D&B PAYDEX score*) so you can start to establish
the basic credentials necessary to qualify for business credit and access to your company's
credit file to understand how your business partners are making decisions on your company and
how you can use your company's strengths to negotiate better terms.
A D&B credit file can be critical in obtaining a loan or making purchases on credit. Many
companies, including WalMart and the U.S. Government, will only do business with companies
that have a D-U-N-S® Number. This could be that added boost to help you cross the finish line
and win the Olympic gold medal in business.
For additional information, call 877-753-1444.
J. Michael Young is a certified public accountant and a graduate of the University of Detroit
Mercy.
Business Credit
There are four basic steps to building a strong business credit portfolio.
Step One Corporate Structure
Choosing the correct corporate structure is critical to the success of your business and will
determine your ability to successfully build corporate credit under your business name. The
most important thing to know is you must be incorporated to build business credit. Creditors will
not give unincorporated businesses the time of day, much less a line of credit. Most business
owners will select one of four different types of corporate structures: LLC, C-Corp, S-Corp, or
Non-Profit LLC, which is a hybrid between a corporation and a limited partnership. Use this type
of filing, if your company is going to have 20 or less employees. LLC's are not taxed at the entity
level, rather the taxes are passed through to the individual shareholders and are paid on the
individual shareholder's tax returns under Capital Gains. This makes paying your corporate taxes
very easy. LLC's also offer protection from liability just like corporations.
C-Corps are corporations that are a separate legal entity from the business owner(s) and thus
provide full liability protection. They do, however, face double taxation; once at the corporate
level and again through the shareholders on dividends paid to them by the corporation.
S-Corps are corporations that have a special tax designation from the IRS. S-Corps are not taxed
at the corporate level. Like LLC's, the taxes are passed through to the individual shareholders
and are paid by the shareholders on their individual tax returns.
Non-Profits: are corporations and thus a separate legal entity providing full liability protection of
assets. Most non-profits will also have a 501(C)3 rating from the IRS granting them a tax exempt
status.
Step 2 Registering with the Credit Bureaus
The second step in building corporate credit is to register your company with the top credit
bureaus used in business credit. The top three credit bureaus used in business credit are Dun &
Bradstreet, Business Experian, and Business Equifax. Dun & Bradstreet is the top business credit
bureau, so it is best to set up your profile with them first. They will assign a DNB (DUNS) number
for your business and a password so that you can assess your credit profile. After you have
entered your business information and set up your business credit profile, you will repeat these
steps for Experian and Equifax. You will need to have your incorporation paperwork and EIN num-
ber from the IRS to complete your credit profiles at the credit bureaus.
Step 3 Assessing Credit Reports
After you have successfully set up your credit profiles at the top three credit bureaus, you will
need to pull your initial credit reports. Although your credit profiles will be initially blank, check
your credit reports for accuracy and update any missing or wrong information.
Step 4 Obtaining Business Credit
Now that you are incorporated and have active credit profiles that are true and accurate, you
can now begin opening accounts under the business name. NEVER allow your personal
information to be used when applying for accounts. Using your personal information (date of
birth, Social Security Number, etc) is the same legally as giving a personal guarantee on that
account. Personal guarantees equate to personal credit. Apply for accounts using your EIN num-
ber and/or DNB number instead of using your Social Security number. Start with small accounts
such as Net-30 vendors.
Once you have 2 Net-30 accounts reporting to your credit profiles, you can advance to low-end
revolving credit lines. (To have your initial credit score issued by Dun & Bradstreet, you will
need to have 4-5 accounts reporting with a two month payment history on each account. This
credit score is called your PAYDEX score and ranges from 0-100. An 80 PAYDEX score is
equivalent to a 750 FICO score used in personal credit). We suggest you obtain 4 low-end
revolving credit lines before advancing to your mid-range revolving creditors. Repeat the same
process with your mid-range revolving creditors, obtaining four mid-range accounts. Once you
have completed your mid-range revolving creditors, you can advance to your bank-level credit
card issuers such as MasterCard, VISA, Discover, and American Express business acounts. Using
this formaula will ensure each creditor is extending your business the highest credit limit
possible. After you have completed all four tiers of credit, your company will now be in line for
bank-level financing and will also qualify for most leasing programs nationwide.
How to build business credit using
Dun & Bradstreet
By J. Michael Young
SUN BUSINESS COLUMNIST
Business owners are often likened to Olympic athletes - they’re always jumping hurtles to get to
the finish line.
Those who are able to bear obstacles and reach the finish line are rewarded with business
credit.
But, how does one win the ultimate prize of receiving a favorable rating with Dun & Bradstreet?
First, Dun & Bradstreet Corporation (D&B) provides credit information on businesses and
corporations. They are known for its D-U-N-S (Data Universal Numbering System), a nine digit
number
containing business information that is assigned to over 100 million companies worldwide.
Information contained in the reports include, extended credit terms, trade experiences,
principal's history, financials (including net worth, cash on hand, AR/AP, etc..), UCC filings,
public re-
cords, liens, suits, volume sales, employee number, terms to liabilities, start date, and even what
type of building the company occupies.
Entrepreneurs looking to establish business credit are more likely to obtain it, if they have a
favorable D&B report.
A DUNS number can be gotten in five days or less by calling (866) 785-0428.
Please note that getting a D-U-N-S Number alone will not establish a D&B credit file for your
company. If you are requesting a D-U-N-S Number because you need to show others that your
business is creditworthy, you will probably need to establish a credit file. To establish a credit
file and obtain a D-U-N-S Number at the same time, get CreditBuilder.
CreditBuilder is ideal for new businesses that need to establish their credit rating. The basic
service costs $329. It assigns you with a D-U-N-S® Number within 24 hours and establishes a basic
credit file on your business. Other services offered under the basic service include, a basic set
of D&B scores and ratings (does not include the D&B PAYDEX score*) so you can start to establish
the basic credentials necessary to qualify for business credit and access to your company's
credit file to understand how your business partners are making decisions on your company and
how you can use your company's strengths to negotiate better terms.
A D&B credit file can be critical in obtaining a loan or making purchases on credit. Many
companies, including WalMart and the U.S. Government, will only do business with companies
that have a D-U-N-S® Number. This could be that added boost to help you cross the finish line
and win the Olympic gold medal in business.
For additional information, call 877-753-1444.
J. Michael Young is a certified public accountant and a graduate of the University of Detroit
Mercy.