By Devon Johnson, WEV Director of Lending
Whenever you apply for business credit, your creditor will want to check your business credit rating. Your business credit rating helps a creditor determine whether or not to give you a credit card or extend a credit line. That’s why a good business credit rating is as important to your company as your personal credit rating.
Your business’s credit is rated by a variety of companies, including Experian and Dun & Bradstreet (D&B). Factors that affect your business credit are things like your company’s start date, number of employees, whether you rent or lease your space, and your profitability, solvency and efficiency ratios. This is how a creditor weighs whether or not you are a good risk. Your best interest is in the creditor’s best interest: both of you want your business to succeed.
How to Get a Business Credit Rating
If you’re just starting out, your business probably won’t have a credit rating yet. But there are a few steps you can take to begin the process: Secure a Federal Tax ID Number, obtain a D-U-N-S Number and/or obtain credit from a company who reports payment history to Experian business services.
What’s a D-U-N-S and do I need one?
It is important to note that once you apply for a free D-U-N-S (Data Universal Numbering System) number, your file will be created. But it will be considered an incomplete file (marketing file) if you have no trade references reporting. If this is the case, you can either add trade references to your file by enrolling in a monitoring program (there is a cost for monitoring programs) or you can apply for credit and wait for a supplier/lender to report your company’s payment activity. But remember, not all business creditors report their trade information. Not sure if they report to Experian or D&B? Just ask.
1) Secure a Federal Tax ID Number* (also known as an Employer Identification Number, or EIN)
This is a number that the Internal Revenue Service assigns to your business. It is a unique identifier that you use when filing for payroll and corporate taxes. It is also the number that lenders use when they want to find out if your company is in good standing with the state in which you incorporated. Good standing means that you have done the necessary filings with the state and have paid your taxes. There are a number of ways you can obtain your company’s Federal Tax ID Number:
- Call the IRS Business and Specialty Tax Hotline at 1-800-829-4933.
- Download IRS Form SS-4 from the Internal Revenue Service website https://www.irs.gov.
- Download IRS Form SS-4 from the Small Business Administration website https://www.sba.gov.
Directions for faxing or mailing the SS-4 forms are provided online.
Once you have your EIN, you can apply for a D&B D-U-N-S Number. Like your Federal Tax ID Number, the D&B Number is a unique nine-digit sequence that provides identifiers of single business entities, while linking corporate family structures together. The D&B D-U-N-S Number will belong to your company alone.
Business credit reports from Experian are created when a creditor reports your payment history to Experian business services. Experian doesn’t require you to apply for a number. All WEV Loan clients are building a business credit report with Experian since we report payment history on our loans.
2) Apply for a D-U-N-S Number
The United States government and many corporations require their suppliers and contractors to have a D-U-N-S Number. Once you have a D-U-N-S Number, your business will be listed in the D&B global database. This database can be checked by potential customers, suppliers and lenders to find out key information about your company.
To understand how a D-U-N-S Number works, visit D&B’s website. Under the section, “Find a Company,” type in the phone number or name and address of an actual business. The company name will pop up if it is registered. At that point, if you were a potential client, you could request a business credit report on the company, for a fee. This would help your business evaluate if the company you’re inquiring about is reputable and creditworthy before you extend them credit, products or services.
You can ask D&B to assign you a D-U-N-S Number for free; the process can take up to 30 business days, so give yourself enough lead time.
In order to receive a D&B rating, you will need to create a complete D&B profile. Acquiring a D-U-N-S number for your business is a free and easy process and only takes about ten minutes to complete online. You can accomplish this by following the steps below.
Go to the Dun & Bradstreet Website and click “Get a D-U-N-S number”
Click “Get a D&B D-U-N-S Number”
Click the “Start Now” button In the “Register to use iUpdate” box.
Enter your business name, city and state to see if you are already listed with D&B
If your business is listed, check the box next to it and click “Next” to retreive your D-U-N-S number. Otherwise, click the “Get a D-U-N-S number” button and complete each of the steps to register.
Building a Good Credit History
Once you’ve been extended credit, whether it’s a bank loan, credit card or an advance on supplies or services, it is important that you make the payments on time. Making late payments can affect your credit profile and potentially limit your ability to secure a loan of any kind in the future.
If you pay your bills on time, not only will you build a good name with your creditors and suppliers, you will also find it easier to obtain credit in the future.
*You may apply for a D-U-N-S number with your social security, however to help prevent fraud or identity theft it is recommended you use your EIN.