The Right and Wrong Way to Get Business Credit Tradelines
Understanding Business Credit Reporting
- Tradelines are credit lines that provide information to Business Credit Bureaus.
- Tradelines are made up of account data such as
- The date opened
- Payment history
- Credit history
- Account balance
- Date reported
- One tradeline corresponds to one reported account.
- Tradelines are individual records of your available credit lines, which is why utilities normally do not report.
- Tradelines are used to establish your creditworthiness for other types of credit.
- If the tradeline is not used, they may cease reporting to business credit bureaus.
Legitimate Business Tradelines
- A few of the tradelines that report business credit include:
- Vendor credit lines
- Business credit cards
- Bank credit cards
- Vehicle loans
- Installment loans
- If you use tradelines, you can quickly establish credit; however, there will be no data to report if you do not have a payment history.
Reporting
Business Credit Reporting
- Tradelines can report to any of the three major commercial credit bureaus:
- Dun & Bradstreet
- Experian
- Equifax.
- Because not all tradelines report to each bureau, having a credit-building strategy is critical.
Misconceptions About Business Credit
There are various myths about establishing company credit.
1. An EIN creates a business credit profile
- An EIN does not establish a corporate credit profile.
- You must verify and register your information with all three commercial credit bureaus.
- To have a credit profile, you must also have reporting accounts.
2. Making business payments automatically results in a good credit score.
- The majority of business payments are unrelated to credit accounts.
- 97% of accounts do not report to credit bureaus.
3. You should apply for additional accounts as soon as you are accepted for your first.
- You should wait for your accounts to report before moving on to the next credit tier.
- Through waiting, you can acquire
- Better account alternatives
- Better terms
- Easier qualifications
4. Good Paydex and credit ratings guarantee approval from all creditors
- Good Paydex and credit scores do not ensure lender approval.
- Scores simply tell a lender whether or not to evaluate your credit.
5. Business credit is built the same way as personal credit.
- Business credit is not developed in the same manner that personal credit is; both are entirely different processes.
- Secured cards are far less effective than gaining fast access to credit lines.
- Vehicle finance is only accessible after you have established your credit; there are no starter vehicle financing choices available.
6. Business credit is only useful for net vendor credit lines
- Business credit offers additional advantages than simply establishing net vendor credit lines.
- You can acquire access to thousands of dollars in credit with business credit through
- Revolving vendor accounts
- Business credit cards
- Vehicle finance
- Bank loans
- Lines of credit.
- There are net, revolving, and payment options available.
Wrong Way
The Wrong Way to Build Business Credit
- The top three ways people fail to generate business credit are
- Buying tradelines
- Buying shelf corporations
- Generating CPNs
- If you are caught performing any of these things, your funding efforts will be ruined.
Piggybacking Tradelines
- Piggybacking tradelines is a technique that involves seasoned tradelines.
- Creditworthy accounts are used to help an unconnected third party's credit.
- A creditworthy borrower adds the third party to their credit lines as an authorized user.
- They do not, however, furnish the third party with materials such as credit cards or account details for them to make charges against that account.
- As a result, the authorized user never spends the credit.
- The third-party benefits from an artificially inflated credit rating.
- As a result, it seems like they have already been accepted for higher-limit revolving accounts.
- In theory, demonstrating that you already have credit should make you more creditworthy for higher limit accounts.
- Many companies claim to be able to get credit lines ranging from $100,000 to $250,000 after these accounts are reported.
- Essentially, by hiding behind a well-established organization, you are lying about your own company's credentials.
- Because business credit is linked to your business information, it does not appear on your business credit record when registered under a different business.
- There are no reporting authorized users on vendor accounts.
- Underwriters can search Authorized User accounts based on a company's age, activity, and relevancy.
- Because of someone else's use, credit cards can harm your score.
- One tradeline that you will be unable to use could cost you up to $2,000.
- In these types of schemes, the FBI has concluded that the tradeline company may be a forgery and the primary cardholder may be a stolen identity.
- Authorized user abuse can result in up to six and a half years in prison.
Piggybacking Will Catch Up To You
- If you spend money to raise your credit scores without performing any of the work, you may be misleading potential investors about your creditworthiness.
- When you acquire a tradeline, the seller will do a credit check because they want to make sure they are paid.
- D&B, for example, will affect whether you purchased tradelines sooner or later.
- If a tradeline sales organization conducts a credit report inquiry, D&B will discover fraud.
- The process of shutting down your tradelines is only the beginning.
- D&B will flag your whole profile, terminate any legitimate and fraudulent deals, and you will lose any time or money you believed you had gained.
Shelf Corporations
- Shelf corporations are companies that were founded and then set aside to mature.
- The corporation is founded on paper,
- but it never conducts any business. There may be a credit history, but that is not always the case.
- Because the business is dormant, there are no real assets or value associated with it.
- Corporations basically re-age when a new owner takes over.
- Shelf firms are a waste of money because they provide no tangible benefit.
CPNs
- CPN is an abbreviation for Credit Privacy Number or Credit Profile Number.
- A CPN is a nine-digit number that resembles a Social Security Number (SSN).
- CPNs are for customers, not for the company.
- They are not a substitute for credit or identity.
- Banks and the federal government do not recognize CPNs.
- Federal and banking requirements demand that you apply with your Social Security number.
- It is prohibited to use a CPN to apply for credit at a bank.
- Checking and savings accounts, SBA loans, and bank loans are examples of assets.
Avoid The Wrong Ways of Building Business Credit
- Lenders and CRAs are aware of all unethical practices.
- Investors are aware of what to look for and are continuously on the lookout for fraud.
- When they see a new authorized user on a card, they will investigate the account right away.
Available Business Credit Lines
Fleet Credit
- Fleet credit is used to purchase gasoline and vehicle upkeep.
- Fleet credit can be used to finance any type of vehicle, from business vehicles to tractor-trailers.
- Net terms are available through Fleet Credit.
Retail Credit Vendors
- Retail credit is provided by companies such as
- Staples
- Amazon
- OfficeMax.
- Retail companies frequently provide net or revolving terms.
- These credit cards can assist you in obtaining whatever you require to manage your corporation.
Business Credit Cards
- Bank credit cards are generally more widely accepted.
- Examples of common bank credit cards include
- Visa
- MasterCard
- American Express
- Discover
- Capital One
Recap
- Slow and steady wins the race when it comes to company credit.
- Take your time developing a good business plan that allows for credit expansion.
- Avoid shortcuts; if something sounds too good to be true, it probably is.
- Purchasing business tradelines will jeopardize your company's credit-building efforts.
- It's deceptive and could be part of a broader fraud campaign.
- Don't put your company through the hassle of illicit credit building.
