In our third installment of “Five Steps to Business Credit,” we will talk about the importance of business credit cards and offer tips on how to obtain credit cards for your business.
After establishing your D&B ® D-U-N-S® number and credit profile, you should check in on your PAYDEX® and overall D&B Rating to see if it’s improving. You can find your credit report including any established scores and ratings from Company Update, a free Dun & Bradstreet Credibility Corp. service.
If all that is true, it’s time to take your business credit one step further: apply for a business credit card. Although some major credit card companies require that companies be in business for one-two years before extending credit, shop around and see if you meet the requirements for any business credit card. When you meet with the bank manager who specializes in small business credit cards, explain that you have been working to improve your business credit rating. Now, you want to apply for a credit card that you can use with other businesses.
Many credit card companies require a Social Security Number to establish a business card. However, you may be able to work around this or use your Employer Identification Number (EIN) instead when applying for a business credit card. It’s best to separate your business and personal credit when starting and growing your business. If your bank manager can see that your business income has been growing, the bank may be more likely to extend to your business a credit account. However, if they do not extend you an account there may be opportunities for compromise. For example, the bank may be willing to let you open a secured credit card at first. After a certain period of positive payment history, the card could convert to a regular account. If you have established a good business credit history and the bank is friendly to small businesses, you are more likely to be successful in your endeavors.
Even after you get a business credit card, you should continue to maintain your trade account payments – keep paying the balance before receiving an invoice. After you start using the business credit card, make sure that that account’s history is being reported to D&B by your business partners so that your business credit profile continues to grow. One of the advantages of business credit is that it is not negatively affected by adding more credit accounts. If you have the need and ability to maintain, consider opening a second business credit card account. Also different from personal credit, a business’s PAYDEX score is not lowered when merchants check your business credit history or when you open more business credit accounts.
Even though your business may not actually require more credit cards to finance operations, you should still consider applying for more business credit cards. In business, the 5-3-2 rule is key – a company’s credit record is not considered established and solid by many, until it has at least five trade accounts, at least three credit cards, and at least two small loans fully paid off.
A word on limits: do not get hung up on your business credit limit. Once you start using the cards regularly and paying for your purchases monthly, your limits should up. After your company has been around for two years, you’ll be able to more easily apply for a major business credit card. Having business cards and developing excellent habits to manage them, such as timely payments, can positively impact your company’s business credit rating.
For more information, please visit DandB.com or call 1-800-280-0306.
This article originally appeared in Dun & Bradstreet Credibility Corp.'s Credit Resources.
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