Updated: Feb 3
One of the first things we do for our clients is create new accounts they can use to build their business credit. These are generally small trade or vendor accounts allowing net term credit of $200 to $1000, utilizing suppliers who auto-report all qualifying business transactions to the corporate credit bureaus.
Tradelines are a fast and effective way to earn strong scores or provide a boost to struggling credit files, and they grow as you use them.
I have seen clients who used the accounts to get scores generated and then never used them again. I have also seen clients, like myself, who use them religiously as part of their day-to-day operations. Believe it or not, there have even been clients who scoffed at small trade lines as insignificant and refused to use them at all.
Surprisingly, how you utilize these accounts can positively impact your business credit scores and rating in more ways than you think.
AS A SUPPLEMENTAL BOOST
About a year ago, a very skeptical business owner called in for a free consultation. He was frustrated because his $2 million a year company was paying out over $600,000 annually in expenses but the only payment in his credit report was a slow payment from two year's prior. Any creditor who reviewed his report saw poor payment history, no Paydex score, no rating, and more importantly, no creditworthiness.
It only took about a month for us to add many of his existing vendors and suppliers to his D&B file and get the slow payment removed. At the same time, we also worked with his staff to create a few new auto-reporting trade accounts because we know these accounts will keep reporting to his file and provide continuous positive payment history. Eventually, he had established a solid foundation with strong scores and ratings and was reaping the benefits.
After finishing with our program, he switched to a "maintenance" program to ensure his credit file never went back to where it had once been. Over time, he has seen his scores continue to be boosted by his newly acquired credit.
TO PROVE ONGOING PAYMENT HISTORY
When you are working toward business credit, you'll find that even small, easily achievable credit lines can have a huge impact on your corporate credit scores and ratings because they prove your company is capable of paying debt on time, and even more so if reflecting over an extended period, such as with revolving accounts. When revolving credit is reported, the effect can be three-fold. Not only does it set a higher base amount that is gradually paid down, but each time your payment is made on time, your debt ratio is reduced and your positive payment performance is bolstered.
If your goal is to build a foundation for higher credit lines in the future or open doors into additional types of credit you may not qualify for at this point, you will find revolving credit provides a necessary lift, especially when you consider that some lenders will not deem your business as eligible without it being present.
TO KICK-START YOUR START-UP
We have had many young start-up companies come to us with no DUNS number and no previous payment history, yet they are able to prove positive performance very quickly using small trade lines that lay the groundwork for higher dollar amounts of credit. These trade lines are often used to buy products or services that every small business needs when they are just getting started, such as business cards, websites, postage, office supplies, tools, or equipment.
You are going to spend money on these essential items anyway, so why not buy from companies that will help to boost your creditworthiness in the process? It's easy and free to open new accounts, but you need to have a few ducks lined up before you do, such as having your DUNS number, EIN, and verifiable contact information for your company.
TO REBUILD POOR CREDIT HISTORY
Small trade lines can also help to rebuild a credit file that has been damaged by poor payment habits. Even if you have made mistakes in the past, these constantly re-reporting vendors can help to reduce the impact of your prior experiences by lowering the weight of the first transgression. A new purchase paid for on-time can effectively reduce the impact by half its original weight each time you re-purchase and pay promptly. Higher dollar purchases carry even more weight and can reduce the impact even faster.
LESSON: Don't miss out on the many benefits of adding small trade lines to your business credit report. If you would like more information about some popular trade lines and what they can do to help your company establish strong payment history, call for your free one-on-one credit consultation today — 800-918-7505.