Oftentimes, when asked what types of credit they already have, business owners will stammer, or say they aren't sure, or will say they don’t have any credit, or that they have some trade lines or a few basic credit cards.
In reality, they may be further along in the credit-building process than they even know. Few realize that just about everything their business pays for, in one way or another, is going to be considered a debt — whether it is paid for ahead of time, at the point of sale, on net terms, or over a period of days, weeks, months, or years.
Below is a basic breakdown to help you better understand the different types of credit:
VENDOR credit is defined as Net accounts with suppliers who provide products or services to any industry but not to any specific industry, such as office supplies, signs, computers, fuel, paper, software, forms, tools, etc. These are the things that most business owners will need in day-to-day operations.
TRADE credit is generally Net, Open, Lease, or Set term accounts, established to purchase products or services specific to your industry, such as selling tires to a tire store, food to a restaurant, pipes to a plumber, or flowers to a florist. If the florist buys tires, for instance, it would be classified as Vendor credit instead of Trade credit.
RETAIL credit generally refers to companies who sell to private consumers as well as commercial customers and offer a variety of account types and repayment terms. A few examples would include: Home Depot, Office Depot, Sears, or Dell. How these transactions get reported to the bureaus will depend on multiple factors, such as whether they are based solely on the business credit or are personally guaranteed, and whether they are Net or Revolving accounts.
FINANCING generally describes accounts created for the purpose of making a monthly payment for a high dollar product or service, such as leasing a photocopier or vehicle, or paying on an expensive contracted service.