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Excellent business credit will give you the power to negotiate for money you need to manage and grow your business. And you won’t have to compromise your personal credit scores by using personal resources to support your business.
Two weeks ago I described the basics of forming a business while building your business credit as quickly as possible, You Can Build Awesome Business Credit – Part 1. Last week, I examined the process required to develop your Dun & Bradstreet’s (D&B) Paydex credit score, which is an evaluation of your payment history, You Can Build Awesome Business Credit — Part 2.
The next step, after you’ve established your D-U-N-S number (assigned by D&B as your unique credit identifier) and have set up active accounts with merchants, such as Staples and UPS, is to open business credit card accounts.
Here’s how: After six months you should have five active trade accounts that you are using each month. During the seventh month, check to see how your credit is improving. Go to eUpdate, which is the free D&B Web site where you’ll find your credit report, including your Paydex score. Correct any errors in your file. If you’ve been paying every account before an invoice is generated by the creditor, you should have a Paydex score higher than 80 (the range is between 0 and 100, with scores over 80 considered the best). You probably won’t have an overall D&B rating, which will require providing D&B with financial details you may not be comfortable revealing to competitors. However, you will have a Paydex score based on your payment history.
Your next step in building business credit is to apply for business credit cards. Most of the major credit card companies insist that you be in business for two years before they will extend you credit.
Hopefully, when you set up your business bank account, you took the time to find a bank friendly to small businesses. Make an appointment to meet with the manager who handles small businesses at your branch. Explain that you have been building your Paydex score with trade accounts and now you want to open a Visa or MasterCard to use with other businesses. (Remember, don’t use your personal credit history to apply for these credit cards; to build business credit, you need the cards to be issued to your company.)
If you have managed your bank account well and the bank manager can see your business income is growing, it is likely the bank will extend an account to you. If you are told their bank policy prevents this, in spite of your excellent Paydex score and your account history, look for a compromise. Maybe you can open a secured credit card that will convert to a regular account after six months of positive payment history. With a pro small business bank and a history of responsible business credit, it is likely you will walk out of the bank approved for a credit card.
Continue with the same practice you’ve established for your trade accounts. Send payment for each purchase as soon as it’s made. Always pay in full before an invoice is generated. Two months after you receive your first business credit card, and your history for that account has been reported to D&B for two months, you want to apply for a second business credit card.
Advanta specializes in small business credit cards and will extend credit to startups. If your bank turns you down, you can apply for the Advanta card first. You should be approved, using only your business credit. Don’t be concerned if these first two credit cards have relatively low credit limits. As you use the cards and pay for your purchases each month, your limits will be increased. When your company crosses the two-year old mark, apply for a major business card and continue the excellent credit management habits you’ve established.
Next week, I’ll conclude this series on building business credit with loans, a line of credit, and a look at other business credit reporting agencies.