In my January 2014 blog post, I indicated that in this month’s blog post we would explore how to Establish Business Credit. I have posed a series of Questions and Answers that may be helpful in thinking about the establishment of business credit.
Question: How to Establish Business Credit?
Answer: A key to establishing credit for a business is to find companies, such as Staples, Office Depot, FEDEX, etc. or your key supplier and vendors that will grant credit for your business without using your personal credit information and then report the payment experiences to the business credit bureaus. By reporting the information to the proper credit bureaus, those companies will help the business establish a business credit profile and score.
Questions: What is a good Business Credit Score?
Answer: Business credit scores range on a scale from 0 to 100 with 75 or more considered an excellent rating. Personal credit scores, on the other hand, range from 300 to 850 with a score of 680 or higher considered excellent. With today’s tighter credit scrutiny the higher the credit score, the more likely an individual or business is to obtain credit and at more favorable terms (interest rate and contract length).
Question: What are the factors that affect a credit score?
Answer: First, the credit score is based on more than just whether you pay your bills on time, which is still very important. And, second, the credit score will be affected by the amount of available credit you have on bank lines of credit and credit cards, the length of time you’ve had a credit profile, the number of inquiries made on your credit profile, paying the bills on time, bankruptcy, as well as other considerations.
Question: Does credit inquiries (business or personal) impact ones credit score?
Answer: According to various recently published articles on credit, “the typical American consumer credit report receives two to three credit inquiries per year and usually has 11 credit obligations – typically broken down as 7 credit cards and 4 installment loans. Business owners are not your typical consumer, because they carry both personal and business credit. This typically doubles the number of inquiries made to their personal credit profile and the number of credit obligations they carry at any given time, all of which negatively impact the personal credit score. Additionally, because business inquiries and personal inquiries are not separated on the personal credit report, the personal credit scores are negatively impacted”.
Question: What is a typical credit mistake made by a Business Owner?
Answer: One of the most significant mistakes made by a typical business owner is using personal information to apply for business credit, leases and loans. This practice has the resultant impact of potentially lowering their personal credit score, while not building a business credit history and business credit score.
Calvin Tucker is the loan officer for WPFSI. His diverse experience ranges from small & large businesses, commercial & mortgage banking, business development, credit analysis, management, origination, servicing [domestic/ international], and more.
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