Best Way to Build Business Credit

In Part 1 of the Best Way to Building Business Credit we covered credit listings, creditworthiness, credit categories, and Tier 1.

Part 2 of this series we’ll cover the remaining tiers of the structure. As a quick recap, Tier 1 should consist of 4-5 reporting trade lines made up of service providers and starter vendors across all three major business credit agencies.

Once you have accomplished this your business will now have a business credit score generated across all three business credit reporting agencies. For example, with Dun & Bradstreet it requires a minimum of three reporting trade experiences to generate a Paydex® Score. Like your personal FICO® score, a business credit score is a statistical measurement of your company’s creditworthiness.

Now keep in mind, a business credit score is only one indicator that lenders and suppliers use to assess the creditworthiness of a business. In Part 1 we discussed the other key factors that contribute to creditworthiness.

With a business credit score your company will now be ready to start building Tier 2 (5-8 total reporting tradelines). This level will consist of suppliers, retailers, fleet credit, etc. The difference is that Tier 2 creditors will conduct a business credit check prior to extending credit to your business. These credit grantors will issue higher credit limits and longer terms compared to what a company receives in Tier 1.

Remember, it’s essential to use your credit lines regularly and pay your invoices on or ahead of the due date so you can establish a strong payment history. Making a one-time purchase will not establish depth in your file nor does it show credit grantors that your business can manage its credit consistently.

After completing Tier 2 you’ll be ready to start building the Tier 3 structure. (10 total reporting tradelines) Now I have to warn you going after Tier 3 financing without building Tier 1 and Tier 2 can be a disaster. Don’t take short cuts by applying for big name brand suppliers and retailers that come with Tier 3 or you will get declined. Tier 3 will also consist of revolving lines of credit in the form of business credit cards and fleet cards.

At the Tier 4 level (10+ total reporting tradelines) your company will be ready to apply for more revolving accounts. At the Tier 4 level you already have an established business credit profile but the major difference is at this tier you don’t have to supply a personal guarantor. It’s also important to have at least three revolving accounts that report at this level in order to establish credit diversity in your profiles.

Remember, a creditworthy structure contains four tiers with each tier having various types of accounts that each fall under different credit categories that we discussed in Part 1.

At this point your business will be in a favorable position to further its financing opportunities. To make sure your business is in the optimal position for more funding the following criteria should be met:

1.    Seasoned your business credit reports for at least 120 days.
2.    Made sure that your business credit scores are at 70 or above.
3.    Your business credit reports show at least $25,000 in trade lines
4.    Optimized the personal credit scores of anyone owning 15% or more of your business.
5.    Maintained at least a low 5 bank rating for the last 4 months.

Doing all this work to build a creditworthy business has a major goal, and that of course is to receive much more funding. Start building your business credit today so you can maximize your funding opportunities while protecting your personal credit ratings.

Ready to start building your business credit? Become a member of my Business Credit Insiders Circle and gain access to a proven step-by-step business credit building system. A system that provides you access to vendor lines of credit, fleet cards, business credit cards with and without a PG, funding sources and lenders that report to all the major business credit bureaus. Submit your name and email below for details and receive a free business credit building audio seminar ($597 value) =>

To Your Success In Business and in Life!

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About the author

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for Dun and Bradstreet Credibility Corp, the SBA.gov Community, About.com and All Business.com. His articles and blog; Business Credit Blogger.com,  have been featured in ‘Fox Small Business’,’American Express Small Business’, ‘Business Week’, ‘The Washington Post’, ‘The New York Times’, ‘The San Francisco Tribune’,‘Alltop’, and ‘Entrepreneur Connect’.