Business Credit

One of the real upsides of having a corporate entity is having a separate credit profile completely segregated from your individual credit score.

It sounds like paradise, especially these days with individual’s FICO scores dropping like flies (FICO is your credit score issued by Fair Isaac Corporation in San Rafael, CA. that combines information from the 3 credit reporting bureaus, Trans-Union, Equifax and Experian. They try to make it a state secret on the formula they use but it’s mostly easy to figure out, pay your bills on time, don’t max your credit card balances, etc.

However, since credit has so much bearing on your life, it’s a good idea to stay on top of it. You also don’t want to be a victim of identity theft.

There are some important differences to know about personal vs. business credit.

As an individual consumer, you are protected by Federal statutes. You can dispute incorrect entries or derogatory reports on your credit report. If the reporting bureau doesn’t reply in 30 days after informing them in writing that you dispute the entry, by law it must be removed.

Not so with businesses. They don’t have these rights. So you better do this thing right because it can take years possibly to remove a derogatory entry or maybe not at all. It might make more sense to form a new entity and start from scratch.

And you have to be really careful with these “business credit builders” that advertise on the internet. Most take your money (usually an exorbitant fee) and produce nothing or very little.

Business credit is also scored differently than a FICO. Instead of 100 to 850, it’s 1 to 100.

The good news is that, done properly, you can have a Dun & Bradstreet Paydex or Experian Intelliscore of 80 that’s equivalent to a FICO of 750 or 800 which is considered excellent. This is separate from your individual credit score so it would probably make more sense to use your business credit score whenever possible.

I really don’t like D&B so much as they are always trying to upsell you and they have been known to arbitrarlly change their rating criteria, but they’ve been around forever so the vendors and lenders are used to seeing Paydex scores. They’ve also moved pretty much to India which doesn’t make me warm and fuzzy when they’re rating American businesses.

Usually, most vendors and lenders want to see an LLC or corporation that is at least 2 years old but these can be found for a reasonable price if you know where to look. Try and avoid the big incorporating outfits. They usually want big bucks and often deliver poor service. You must also check that the “shelf corporation” is free from things like liens and encumbrances.

If you’re not wanting $30,000 in cash immediately or some ridiculous credit line, you can find many vendors that will extend credit to new entities. Then you can build from there, one step at a time.

The nice thing about having a corporate entity with its own credit profile is that, regardless of personal credit problems in the past, you can have a vehicle for financing things like business equipment, business expenses like travel, seminars, software and hardware purchases, even vehicles. I will post later on tax savings…it’s a biggie.

Of course, the smart thing would be to work on your personal credit as well while you are continually enhancing your business credit.

The main thing to remember is that an internet business is still a business and, if you treat it as such, you will be richly rewarded.