Business Credit: Top 10 Myths
On the previous post I covered the first four myths on building business credit. I encourage you to bookmark these posts so you can revisit them at any time.
Here are the remaining myths of the top 10 surrounding the corporate credit industry:
6: All vendors, suppliers and lenders report to the business credit bureaus
Not true! There are over a half a million vendors and suppliers that are willing to extend vendor lines of credit to your business but less than six thousand of these companies report to the business credit bureaus. What’s even more alarming is not all of these companies report on a monthly basis either. Some only report to the business credit bureaus once every six months!
5: All business credit cards report to the business credit bureaus
Currently there are over five hundred business credit cards in the marketplace but less than forty will issue a card without requiring a personal credit check or personal guarantee. These select cards report solely to the business credit bureaus and not your personal credit reports. However, there are also a few business credit cards that require a personal guarantee but only report to the business credit bureaus.
4: Every business has a business credit profile with the business credit bureaus
A Dun & Bradstreet profile requires that a business owner first apply for a DUNs number and submit their business information. Corporate Experian and Small Business Equifax create a business profile report for your company once a lender or supplier that you have payment experience with submits a data record. There are many other business credit bureaus that require business owners to complete a registration process prior to creating a profile.
3: Buy a shelf corporation and get all the business credit you’ll ever need
Shelf corporations provide certain advantages when it comes to obtaining credit simply from the fact that a business that is five years old has a much greater influence to a lender than a business that’s been in business for a few months.
With that said a shelf corporation alone will not enable you to obtain all the credit you need because there are many other factors that are taken into consideration. For example, if you have a ten year old shelf corporation that needs a $100k business line of credit a bank will need to view your company’s bank rating, balance history, financials, tax returns, profit & loss statements and so on.
2: All you need is a strong paydex score to qualify for a business line of credit
While a strong business credit file does play a part in qualifying banks look at many other factors. This includes your bank rating, balance rating, NSF track record and personal credit scores.
1: All you need is an 80 paydex score to get unlimited business financing
This by far is one of the biggest myths in business credit because an 80 paydex score with Dun & Bradstreet is said to be like having a 720 personal credit score. While that may be true to some degree there are some important details that many fail to mention. For example, you can have four positive trade references reporting with $200 being the highest credit limit on all four accounts and still score an 80 paydex.
This is because DNB’s rating system requires a minimum of four positive trade references but if the four you have are small limits then this hardly qualifies your business to get approved for thousands of dollars of cash credit, lease credit, business loans and business lines of credit.
In addition, having only a DNB file is like having only one personal credit file with the credit reporting agencies. Let’s say all you have is a personal credit file with Equifax but have no file with Transunion or Experian. You would never be able to get approved for a mortgage because you don’t have a completed financial picture for lenders to review your creditworthiness.
This holds true for your business as well. In order to show a complete business credit report for your company then you will need to have a profile with the three main business credit bureaus.
Now that you know the myths surrounding the industry I encourage you to share this information with other small business owners and put your company on the path to corporate credit success!
Business Credit Resources
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Marco Carbajo is a business credit specialist, author, speaker, and founder of the Business Credit Insiders Circle. He is a weekly columnist for Dun & Bradstreet Small Business Solutions, a business credit blogger for All Business & American Express Small Business and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in Business Week, The Washington Post, The San Francisco Tribune, Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain.