It’s now been six months since you established your DUNS number and initiated your five trade accounts. You have been paying off the balances promptly. Around month seven, you should check in on your credit rating to see whether it’s improving. You can find your credit report and PAYDEX score from iUpdate, a free D&B service. Assuming you have paid every account over the past six months before the accounts generated an invoice, your PAYDEX score should be higher than 80 (an excellent score).
If all that is true, it’s time to take your business credit one step further: apply for a business credit card. Although most major credit card companies require that companies be in business for two years before extending credit, there are many small, local banks that are more accommodating to small businesses. (They may be even more accommodating if you were savvy enough to set up a business bank account with them!)
When you meet with the bank manager who specializes in small business credit cards, explain that you have been working to improve your PAYDEX score. Now, you want to open a Visa or MasterCard that you can use with other businesses.
It’s critical to remember at this point NOT to use your personal credit when you apply for these credit cards. You need the cards issued to your business in order to build your business credit.
If your business income has been growing, and the bank manager can see that, the bank will likely extend your business a credit account. However, things do not always go as planned – if for some reason they cannot extend you an account, there may be opportunities for compromise. For example, the bank may be willing to let you open a secured credit card at first. After a certain time, say six months, of positive payment history, the card should convert to a regular account. If you have established a good business credit history and the bank is friendly to small businesses, you will likely get an account.
Even after you get a business credit card, you should continue to maintain your trade account payments – keep paying the balance before receiving an invoice. After you start using the business credit card, make sure that that account’s history is being reported to D&B, so that your credit profile continues to grow. Then, two months after you obtain your first card, apply for a second one.
Why so quickly? This is another place where business credit diverges from personal credit. Your business credit will not be negatively affected by adding more credit accounts. Also different from personal credit, a business’s PAYDEX score is not lowered when merchants check your business credit history or when you open more credit accounts.
Even though your business may not actually require more credit cards to finance its operations, you should still apply for more business credit cards. In business, the 5-3-2 rule is key – a company’s credit record is not considered established and solid until it has at least five trade accounts, at least three credit cards, and at least two small loans fully paid off.
A word on limits: do not get hung up on the amount of your business credit limits. Once you start using the cards regularly (and paying for your purchases monthly), your limits will go up. After your company has been around for two years, you’ll be able to apply for a major business credit card.
Having business cards and developing excellent habits to manage them, such as timely payments, can significantly improve your company’s business credit rating. That said, it’s important to note that your small business credit cards will also be reported on your personal credit reports. If it hasn’t been said enough here already, timely payments are paramount to avoiding damage to both your PAYDEX score as well as your personal credit.
The information and advice provided by Dun & Bradstreet Credibility Corp. is provided "as-is." Dun & Bradstreet Credibility Corp. makes no representations or warranties, express or implied, with respect to such information and the results of the use of such information, including but not limited to implied warranty of merchantability and fitness for a particular purpose. Neither Dun & Bradstreet Credibility Corp. or any of its parents, subsidiaries, affiliates or their respective partners, officers, directors, employees or agents shall be held liable for any damages, whether direct, indirect, incidental, special or consequential, including but not limited to lost revenues or lost profits, arising from or in connection with a business's use or reliance on the information or advice offered by Dun & Bradstreet Credibility Corp.