Tuesday, October 13, 2009

Building Business Credit

The NYS SBDC Central office has been getting an inordinate number of pre-recorded phone calls lately. Many of them are apparently random-number generated and have messages that start: "We're pleased to let you know that you are eligible for our debt reduction service..." Quoting Simon & Garfunkel: "And blah, blah, blah."

Since someone has recently asked us about how to build their credit, here are some do's and don'ts.

DO establish credit by getting at least one credit card.

DO choose a credit card wisely.

DON'T, if you do get into credit difficulty, hide the overdue bills in a drawer, but rather talk with your creditors.

DO get your credit report. You can get it for free.

DO dispute credit report errors - yes, they do make mistakes, especially if your name is common.

DON'T believe claims such as "We can erase your bad credit — 100% guaranteed".

DON'T try to hide unfavorable credit information by establishing a new credit identity, unless you are a big fan of hefty fines and prison terms.

NOW, when it comes to building BUSINESS credit, do all of the above for your PERSONAL credit, plus establish credit SEPARATE from the individual by treating business separate from oneself by:
# getting an EIN - you can do it online with the IRS
# setting up a recognized structure such as an LLC or S-Corp
# having a separate phone number (make sure it's listed!), bank account, credit card
# setting up some net 15 or net 30 accounts with your primary vendors and paying them AND the credit card off promptly
# getting a D&B D-U-N-S® Number

There are lots of companies who will offer to sell you ways to get business credit; some of them will be telling you, or doing for you, some of these same steps. A couple recommended free guidelines from About.com can be found here and here.

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