Avoid Business Credit Gotchas

With increased economic uncertainties, small business owners feel greater pressure to do it right when building business credit.  Unfortunately, this can mean you are faced with hard-sell tactics.  Dozens of reader questions about business credit-building services have come to me since I wrote the 4-part You Can Build Awesome Business Credit series early this year.  The many companies selling these business credit-building services, including Dun & Bradstreet (D&B), which is the parent company of AllBusiness.com, offer to perform tasks you can complete for your self with ease. 

For a fee of $500 and up, credit-building services open accounts for you.  Typically, readers are initially happy with the service. Two or three accounts have been opened with Staples, Home Depot, Uline, and similar start-up friendly companies -- even though readers could have easily established these accounts themselves at no expense.     

However, after making a few requests for an oil company credit card, which will help them keep track of business travel expenses and seeing no action by the credit creating service, they contact me again to ask how they can qualify for one using only their EIN (employer identification number) and not their social security number.  They want their business expenses to build their business credit history, not hurt their personal credit.  About half-way through their one-year contract, they turn sour on the service. Their expectations aren't being met.  

A case in point: A woman, who founded a consulting firm in California, learned that her business received extremely high credit limits on accounts, but only because the credit-building company used her excellent personal credit on applications.  In the end, her personal credit was destroyed and she did not establish any business credit history.  Because she was paying off her accounts in accord with excellent business credit principles, she would have had the foundation for superior business credit after a few months without using the service.  Instead, she had a financial mess.      

Be careful about allowing a third-party to take over one of the most important responsibilities for you as an entrepreneur.  Know that you can build your own business credit.  The steps are simple to understand.  And business credit is much easier to comprehend than personal credit, as you’ll discover when you read the 4-part series.  More important, as a new business, when you delegate this process to another company, you miss the opportunities to establish rapport with the merchants you will patronize. While building your credit you will develop relationships with businesses and banks, which will serve you well as your business grows.    

In addition to the questions about credit-building businesses, I’ve received many inquiries about what is required to qualify for a DUNS number, the identification number D&B assigns to your company for your credit file.  Any legitimate business can qualify for a DUNS number.  You can apply online .  When forming a new company recently, I applied for a DUNS number.  This is the email I received after applying:

Thank you for providing your company's business information on D&B's eUpdate Internet site. The D&B report on your business will be available for use in a variety of business purposes and you just made the important step of ensuring its accuracy and completeness.

Once your company information has been accepted in our database, we encourage you to review our information on your company-free of charge-as often as you like with D&B eUpdate.

Thank you for visiting www.dnb.com and we look forward to your return.

If you would not like to receive future communications from D&B's eUpdate, simply reply back and type "unsubscribe" in the subject field.

D&B amasses databases of information about as many companies as they can.  They would like to include details of your company information in their files.  As a privately held business, there are many excellent reasons for you to not disclose operations details.  Access to your personal credit information is protected under the Fair Credit Reporting Act (FCRA).  You have no similar protection for your business credit. 

Any information you provide to a business credit reporting company can, and will, be made public in some form.  Decide how much information you want your competitors to be able to access before you divulge the data to any external, non-confidential source.  Remain polite and simply tell any representative from a credit reporting firm: “This is a privately held company.  Our policy is to not release confidential information.”  If you don’t want your information to be public, reject any sales pressure to try to extricate it from you.

The information on your DUNS number application will deliver your DUNS number and a password so you can access your account with no charges.  Your Paydex score (business credit score) will be created as a result of your business creditors reporting your  account activity to D&B.  And you will be able to access your personal credit file through D&B’s eUpdate at no charge. 

Managing money will be a key to your business success.  Start by taking the baby steps required to build your company's credit history.  And know that you and your business will profit from the knowledge and relationships you acquire during the process.