BUSINESS CREDIT FOR TRUCKERS
Why Build Business Credit?
Business Credit is separate from personal credit. Business credit separates your business liability and your business credit report from your consumer reports. Business Credit can be used to fund a business itself so that you don’t have to personally fund it. Business Credit is not responsible for business debts. Fleet Credit and gas credit cards help dramatically for the exportation industry in terms of gas and maintenance costs. There is often no personal credit check, so your personal credit does not play a factor in your business credit score. You gain two times the borrowing power after establishing a business credit account since you will obtain two different credit profiles. Business credit builds much faster than personal credit, and business credit limits are 10-100% of consumer credit
Business Credit Scoring Factors
Scoring factors for business credit are primarily based on payment history. Personal credit has five different components:
Payment history 35%
Credit mix 10%
Length of Credit History 15%
Accumulation of new credit 10%
These percentages matter because when you try to fix one component of FICO, it hurts another. Because trying to improve one factor hurts another, it is very difficult to get good scores. It usually takes people well into their 40s to get credit scores of 800. Business credit, however, is based primarily on payment history. Dun and Bradstreet scores are strictly based on how you pay.
Expect payment may come early 100
Payment is prompt 80
Payment comes 14 days beyond terms 70
Payment comes 21 days beyond terms 60
Payment comes 30 days beyond terms 50
Payment comes 60 days beyond terms 40
Payment comes 90 days beyond terms 30
Payment comes 120 days beyond terms 20
If you get business credit accounts that report to agencies such as D&B, Equifax, and Experian, and you consistently pay your bills on time, you will build a good score which will drive future approvals.
The most common reason for denial is that there is no established business credit. Business owners are not required to state a reason for denial. Businesses don’t have a business credit profile in the beginning, but you can be given a credit profile with Experian and Equifax, even if you have no business credit. Having no established business credit at all can result in failing scores, so even one account reporting can give you a positive business credit score. When you get more business credit accounts, you can access higher tiers of business credit. First, get business credit that reports, which will count as trade lines and give you a business credit profile.
Having a credit profile will help you get approved for financing. Paying the bills on time will give you a good score. A good business credit score is what determines the interest rates that you will pay.
Building Business Fundability
Over 20 credibility points are needed to build business fundability. Be sure to include the exact business legal name with any recorded DBA filing. Keep the business name identical on corporation papers, licenses, and bank statements
Corporate Entities and EIN
Corporation or LLC separates personal credit from business credit. Be sure to stay away from partnerships for this reason. Use EIN to open your actual account and build your credit profile. Always be sure to verify all listings the same.
The address for your business must be a real brick-and-mortar building with a deliverable physical address. Your business address cannot be a home address, PO Box, or UPS address. Some lenders will not approve funds unless this criteria is met. A virtual address is a great alternative. With companies such as Alliance, you can rent a business address to get mailed there without renting a physical location. As your business grows and changes location, having one set virtual address saves lots of time and effort when filing reports.
You must have a dedicated business phone number that is listed with 411 directory assistance, under the business name. Lenders, vendors, creditors, and even insurance providers will verify that your business is listed with 411. This is the second essential item that initial credit vendors look at for approval. You must use a business phone number, not a home or cell phone, and your business should have an 800 number and a fax number. Voice Over IP numbers are okay, but you cannot use a home or cell phone.
Website and Email
Credit providers will research your company on the internet and it is best if they learned everything directly from your company website. You should also have a professional email address such as email@example.com. These are super cheap and easy to set up. Not having an email or website will make you look uncredible
You will need to contact the State, County, and City Government offices to see if there are any required licenses and permits to operate your type of business. For instance, a commercial driver’s license is needed for truck drivers. Do not apply if you are unlicensed when you should be
Take the time to verify that main agencies (State, IRS, Bank, and 411 national directory) have your business listed the same way and with your exact legal name. Also take the time to ensure every bill you get (power bill, phone bill, landlord, etc) has the business name listed correctly and comes to the business address.
If you bought a business, the ownership automatically changes on the actual credit report, which triggers a red flag where lenders immediately start going off your bank account start date instead of the start date that the entity was founded. Longer business history is better, so you want to get that business bank account opened because it will be used as a reference. You want to keep a $10,000 balance in your business bank account if you are ever going to apply for a SBA loan.
Bank credit is an internal secret credit score used by the banking system that is based off of your average account balance over the last 90 days. In order for you to have a score high enough to be lendable for a bank loan, you need to have $10,000 on average in your business bank account. Only big banks such as Wells Fargo and Chase pay attention to your bank credit score for lendability. A low five rating is needed in order to get a big bank loan.
Get a DUNS number or Business Identification number (BIN) at: creditsuite.com/DUNS. Getting a DUNS number is free. D&B will email and call you trying to sell something called credit builder, which you do not need. Use your DUNS number when applying for business credit, even if credit issuers don’t ask for it. Having three accounts reporting to D&B will activate your credit profile, and you never need to pay them a dime. Next, you are going to need credit monitoring soon after you start to add vendor credit. You can get credit monitoring at: creditsuite.com/monitoring
Four Ways to Build Initial Business Credit
- Vendor Credit Accounts
Vendors are credit issuers that offer terms like Net 30, which would give you 30 days to pay it off in its entirety. Some vendors ask for EIN or 411 listings. Utilize start vendors such as Quill, Grainger, and Uline Strategic Network Solutions. Get credit with these companies and then use the credit after you have paid the bill and the item has been shipped. Then, these companies will report to the business credit reporting agencies, and you will successfully obtain trade lines.
- Unsecured Business Financing
You get to use your good personal credit and you don’t mind using a personal guarantee of yourself or guarantor, and you get physical cash credit cards such as Visa cards, MasterCard, or AMEX. Your business can get unsecured financing for up to $150,000. You can also get 0% rates for 6-18 months. You are getting 5-8 actual credit lines that report to the business credit reporting agencies. Guarantees and startup businesses are welcome.
Apply at: creditsuite.com/funding
- D&B Credit Profile
D&B Credibility only offers one way to start a business credit profile and they will try to convince you that it is the only way, even though it’s not. They will charge upwards of $2,000 to put trade lines on your report using your current creditors. These only report to D&B and take time. They choose what can and can’t get added, and most cannot get added. They won’t add bank credit, leases, rent, cell phone, or utility payments. You don’t obtain usable credit at all, just your current creditors are added.
- Credit Suite Monitoring
This allows you to take accounts you already have, including utilities, water, gas, electric, cell phone, internet, and add them to your Experian credit safe business credit reports. This is a newer and faster way to add accounts you already have, and if you combine that with vendor credit it works really well.
Important Details for Building Initial Credit
Never provide your SSN unless there is written disclosure stating that it is for identification purposes only. EIN is used for credit checks, then they pull that credit profile and score. You may need an initial prepaid order before approval. The first account reports to D&B, and they will activate your credit profile. Remember, the first account to Experian and Equifax will automatically make that profile public, but D&B requires three accounts reporting to make that profile public. If you got vendor accounts, you will have to pay them in full and on time every time. Some accounts may take three reporting cycles to actually report, so you want to get at least five accounts to move on to the next business credit tier.
Retail Credit Tier
The retail credit tier is reached when 5-8 trade lines are established. You can get to this point in about 60 to 90 days. You are building store credit at this stage with retailers such as Best Buy, Amazon, Apple, Costco, etc. to buy electronics and supplies for your business.
Fleet Credit Tier
It takes about 10-15 accounts reporting to reach the fleet credit tier. You need at least one account with a $10,000 limit, and a 75 paydex score, which means you pay your bills as agreed. At this tier, you are able to buy fuel, repair, maintenance. At the fleet credit tier, you are buying from places like BP, Conoco, and Shell. Shell, for example, reports to D&B and Experian, which means you would need a Paydex score of 78 and a 411 business listing. Fleet credit is important for the trucking industry because it is used to obtain fuel cards to get gas wherever you are. You can also use these cards for truck repair, maintenance, and wheel costs.
Cash Credit Tier
You will reach the cash credit tier with 15 or more accounts established. This tier is where you keep building business credit to qualify for more high limit accounts. You are able to get more from credit cards such as Visa, MasterCard, and American Express cards without the personal guarantee and personal credit check.
First, you set up the business credibly. Next, you start getting initial business credit using four different methods: Vendor credit, personal guarantee, D&B credit builder, and credit monitoring. Once you get five accounts or more reporting, then you move to retail credit. With ten accounts reporting, you move to the fleet credit tier, which is important for truck drivers to pay for repair and maintenance fees. With fifteen accounts or more, you get to the cash credit tier where you get credit cards with personal guarantee or personal credit check. Business credit scores are primarily based on paying bills early, which really makes a huge difference.