Building Business Credit for Small Business
Is bad credit holding you back? 
Are you tired of getting turned down every time you apply for credit cards?
Even though you can easily start rebuilding and repairing your credit with a secured credit card I’m sure you would much rather start with an unsecured credit card instead.
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While small business credit card usage is on the rise according to the 2009 Small Business Credit Card Survey the majority of all small business owners fail to understand the importance of what’s in the fine print.
Statistics even show that over 65% off all small businesses use credit cards on a regular basis; but the problem is less than half of those credit cards are actually in the business name.
I hope to provide you with some insight into business credit cards and what you should pay close attention to when applying.
First, you should be aware that there are over 500 business credit cards available in the marketplace but less than 70 report your payment history to the business credit bureaus.
In addition, there are less than 40 business credit cards that will extend cash credit cards to your business without a personal guarantee.
Here are my ‘Top 4 Types of Business Credit Card Applications’ you should know about
The Business Credit Card Wannabe
This business credit card is by far the worst and in my opinion very misleading. It doesn’t matter how much fluff or creative sales copy is used by these particular companies what matters is what’ in the fine print! In a nutshell this business credit card application is nothing more than a glorified personal credit card.
How to identify?
The application requires your personal information, social security number, and business name only. No Tax ID# or Duns# is required.
Disadvantages
Personally liable for all debt
All charges and debts are reported on personal credit files
Impacts personal debt to credit limit ratios
The Business Credit Card Poser
This business credit card is doing its best to be a true business credit card but it doesn’t quite make the grade. In a nutshell this card still requires a personal guarantee but what makes it appealing is the payment history and credit card balance are solely reported to the businesses credit reports not personal.
How to identify?
The application requires your business information, Fed Tax ID#, Duns#, personal information and social security number.
Disadvantages
Personally liable for all debt if the business defaults
The True Business Credit Card
This is the real deal business credit card and what truly represents what every business owner should have. A card that is tied to the business and completely separate from personal credit. This card is the best of both worlds! The payment history and balances report solely on the business credit reports and there is no personal guarantee keeping the liability strictly tied to the business.
How to identify?
The application requires your business information, Fed Tax ID#, Duns#, personal information but no personal social security number. (No personal guarantee)
Disadvantages
NONE
*Keep in mind there are also business credit cards that allow you to apply with business information only and no personal credit check. However, if you’re business credit scores and files are not strong enough they may require a personal guarantee for approval. I call this the ‘Two Faced Business Credit Card’.
Looking to rebuild 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 ($497 value) =>
To Your Success in Business and in Life!
Did This Blog Help You? If so, I would greatly appreciate if you like and shared this on Facebook and Twitter.
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, Business.com, 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’.
As credit card profiling, credit limit reductions and interest rate hikes weren’t enough there is an even greater more dangerous tactic that creditors are using causing a snow ball like effect that’s hitting even the most pristine credit worthy consumers.
By 2010 there is an estimate that there will be $2 trillion less in credit limit availability in the marketplace or 40%.
Recently there was a video on CBS about Miriam Majors, a young woman who had her credit limits reduced because of credit card profiling and as a result the ‘balance chasing’ tactic that creditors are also using created a snow ball effect of problems for Miriam.
What is ‘balance chasing’?
If a creditor sees that another creditor has reduced your credit limits therefore increasing your debt to credit limit ratios than this is what triggers the second creditor to issue an interest rate hike.
Here’s what happened to Miriam Majors:
The Snowball Effect
Her solution:
Don’t think for a minute that your 750 or 780 credit score is immune to what’s going on in the credit card industry. As you can see that one creditor that decides to reduce your credit limit can trigger a snow ball or domino like effect on your credit and finances and leave you powerless to defend it.
Miriam Majors did take action but unfortunately the damage is done and even though her credit score is within prime rate qualification the time, frustration and money it cost to her is something that will stick with her for life.
Remember – Anytime you suffer a setback or disappointment, put your head down and plow ahead. ~ Les Brown
Looking to build 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 ($497 value) =>
To Your Success in Business and in Life!
Did This Blog Help You? If so, I would greatly appreciate if you like and shared this on Facebook and Twitter.
About the Author
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.
Most individuals who have made it a habit to annually check their credit reports with the three credit reporting agencies; Equifax, Experian, and TransUnion have found themselves in a state of confusion when it comes to understanding credit scores. The most commonly used credit scoring model is FICO® and the new kid on the block known as Vantage Score.
While these scores are important in obtaining credit, loans, and lower interest rates, there seems to be several credit score myths that need to be debunked.
Here are my ‘Top 10 Credit Score Myths’
Myth: There is only one credit score.
Fact: There are three credit scores; one from each of the aforementioned agencies. Equifax’s credit score is called the Beacon Score, Transunion’s credit score is Empirica Score, while Experian has embraced it’s own new credit scoring system called Vantage Score.
Myth: Your score will decrease every time you check it.
Fact: Not true. You can ascertain what your score is as often as you need to and it will not lower your score at all. Go to http://www.myfico.com to order your scores today.
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Your payment history accounts for 35% of your credit score according to Fair Isaac. The most common advice you will hear from every so called “credit expert” is make your payments on time. While this is the basics of building and maintaining a good credit score let’s go way beyond that.
Each time you make a monthly payment towards your credit card balance whether on time or late your credit card issuer reports your payment to the credit reporting companies they subscribe to on a monthly basis. Every time you make a timely payment it counts as a positive point factor to your payment history. The more timely payments you make the more positive point factors that go towards your payment history therefore boosting your credit score.
There is a way to double and even triple your monthly positive point payments on one single trade line each and every month! This is done by breaking up your monthly payment to one creditor into three payments each spread over a 10 day period. For example, your minimum payment is $75 on a credit card and the due date is the 30th of each month. You would send a $27 payment for your creditor to receive on the 10th, 20th, and 30th. This would total $81 and would count towards three positive point payments to your account instead of one for that month alone. This can be done with multiple cards but be sure you are not breaking up minimum payments that are less than $75 because it really would not be worth the effort.
Your probably wondering why the extra $2 on each payment. The reason is paying more than the minimum also increases your positive point factors and increases the chances of your creditor increasing your credit limits. The more you show your ability to handle your debt the better!
Remember, by making a higher payment and increasing the amount of payments sent to your creditors the more positive action your account will report to the credit reporting agencies.
Quick Tip
This seems like a contradiction, but it really is not. Many people think that to improve their credit score, they just have to pay off some debts and close their accounts. This is not exactly accurate. There are several reasons to think carefully before closing your accounts.
First, if you close an account you need (for example, if you close all your credit card accounts) then you will have to reapply for credit, and all those inquiries from lenders will cause your credit score to actually drop.
Secondly, most credit reporting companies give high favorable points to those who have a good long-term credit history. That means that closing the credit card account you have had since college may actually hurt you in the long run. If you have credit accounts that you don’t use or if you have too many credit lines, then by all means pay off some and close them. Doing so may help your credit score – but only if you don’t close long-term accounts you need.
In general, close the most recent accounts first and only when you are sure you will not need that credit in the near future. Closing your accounts is a bad idea if:
1) You will be applying for a loan soon. The closing of your accounts will make your credit score drop in the short term and will not allow you to qualify for good loan rates.
2) Closing your accounts will make your overall debt balance too high. If you owe $10,000 now and closing some accounts would leave you with only $1,000 of possible credit, you are close to maxing out your credit which gives you a bad credit rating.
In the short term, closing accounts will lower your credit score, but in the long run it can be beneficial. Don’t make the mistake of closing lots of credit accounts just to improve your score.
Looking to build your personal and 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) =>
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 AllBusiness, a subsidiary of Dun and Bradstreet 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 the SBA Community, American Express Small Business, Business Week, The Washington Post, The San Francisco Tribune, Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain.