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The Truth About Alternative Credit Scores

August 15th, 2017 · Credit Scores

The Truth About Alternative Credit ScoresIf your traditional credit score is too poor – or too thin – to qualify you for a loan, credit card, or lease, an alternative credit score could get the job done. And provided the lender reports to the big three credit bureaus, it can help you establish or repair your traditional credit score, too. But as with traditional scores, there are multiple alternative credit scoring models out there. Get the facts about who generates alternative scores, how they’re calculated, and the pros and cons of using them.

Difference between traditional and alternative credit score

The difference is in the type of data used to calculate the score.

A traditional credit score is based on loan, credit card, and credit line history, including:

Traditional credit scores also take into account:

  • Number of hard credit inquiries
  • Accounts in collections or default (e.g., installment loans, credit cards, medical bills, utility bills, cell phone bills, etc.)
  • Public records (e.g., tax liens, garnishments, foreclosure, bankruptcy).

It is this traditional type of score that has been used for years by the big three credit bureaus – Experian, Equifax, and TransUnion – to generate FICO Scores and VantageScores.

An alternative credit score is based on other types of data, such as:

  • Rent payments*
  • Utility payments
  • Cell phone payments
  • Cable payments
  • Checking account history
  • How often you move
  • Property records
  • Education
  • Occupation
  • Shopping habits
  • Social media

*Rent payments are not exclusive to alternative credit scoring. All three of the credit bureaus will add rent payment information to your credit reports if they receive that data. That said, rent payments are not used when calculating all FICO Scores; they are only worked into FICO 9 and FICO Score XD. They are also included in VantageScores.

Who generates alternative credit scores

FICO via Equifax

Of all the credit scoring models, FICO is used by lenders most. But to generate a traditional FICO Score, you need:

  • At least one credit account that is at least 6 months old AND
  • At least one credit account that has reported to the credit bureaus within the past 6 months

So it was exciting news when FICO – in partnership with Equifax and LexisNexis Risk Solutions – launched FICO Score XD for consumers who do not meet the requirements to generate a traditional FICO Score.

FICO Score XD is based on:

  • Landline, mobile, and cable payments
  • Public records and property data
  • Existing credit bureau data

After 6 months of scoring under the XD model, FICO upgrades you to a traditional FICO Score.

TransUnion

As one of the big three credit bureaus, TransUnion generates both traditional FICO Scores and VantageScores. But in 2015, it launched its own alternative scoring model – CreditVision Link.

CreditVision Link is based on:

  • Checking account history
  • Payday loan history
  • Property records
  • Tax and deed records
  • Existing TransUnion data

It also relies on trended data, which CreditVision explains like this:

“Traditionally, credit scores have incorporated one snapshot in time of a consumer’s history of credit usage. Trended data incorporates past history connected over time to indicate risk level based on the trajectory of a consumer’s debt balances, spending and actual payment amount….

“Trended data assets leverage an expanded view of credit behavior data on each consumer that includes up to 30 months of historical information on each loan account, plus payment history, amount paid vs. minimum due, and the total amount borrowed over time, for a more holistic view of a consumer’s credit behavior and trends.”

FactorTrust

Calling itself The Alternative Credit Bureau, FactorTrust operates much like one of the big three credit bureaus, basing credit scores on loan performance and public records. You can also request a credit report from them and request an investigation if you find an error in your report.

Where FactorTrust differs from the traditional credit bureaus is in its use of real-time bank account details that allows it to track earning, spending, and saving behavior.

As explained by Lending Times’ Allen Taylor:

“Every new application or inquiry is treated as a new consumer without performance data. Once an application is accepted, performance data supporting the application is then collected. Factor Trust’s data comprises of application and tradeline information, and, with the help of these data, the company is able to get comprehensive knowledge about consumer spending patterns and the types of products these consumers use. Other important information like stability, payment history, and income stream provide additional insight into financial habits of consumers.”

Aire

This alternative credit scoring company is currently only available to those in the UK, but its unique spin on alternative credit scoring makes it worth a mention, as it (or something like it) could become available in the U.S.

Aire incorporates into its model what it calls an Interactive Virtual Interview. This 3-minute “machine-learning solution” collects information about your profession, education, lifestyle, and financial situation.

Like FactorTrust, in order for an Aire credit score to be generated, you must first submit an application for credit through one of its lending partners. And like the traditional credit bureaus, you can request to see the data Aire has collected on you and initiate an investigation if you should discover a mistake.

Happy Mango

This alternative credit score relies on your financial accounts and personal referrals.

  • You link your financial account(s) to Happy Mango. They track your earning, spending, and saving, assigning a credit score to each of these categories.
  • You ask family and friends to vouch for you. They are called trustees and they generate a referral credit score.

Though you can sign up for free, as of this writing, there aren’t a lot of lenders offering loans through the Happy Mango marketplace. In fact, there is just one – Spring Bank – with two others listed as “coming soon.”

eCredable

When you sign up for eCredable AMP Connect, you can start building an alternative credit score based on the utility accounts you link to your profile, including:

  • Cell phone
  • Landline
  • Internet
  • Cable
  • Satellite TV
  • Gas
  • Water
  • Electric

While you won’t find every utility company eligible for linking, thousands are available, including AT&T, Verizon, Time Warner, and DirectTV.

There are two types of membership:

AMP Connect Basic

  • Free
  • Requires manual updating of accounts
  • Charges $19.95 per updated account every time it is verified

AMP Connect Plus

  • $19.95 per year
  • Automatic updates available for up to eight accounts (included in cost of the plan)
  • $19.95 for accounts that must be manually updated every time it is verified (e.g., rent)
  • Unlimited credit reports and score updates

Unfortunately, as reported by Bev O’Shea for NerdWallet, this may not be a good investment of your money right now. eCredable used to offer an unsecured credit card based on your eCredable score, but that partnership is no more:

“Because there currently is no unsecured credit card offering, and the other [eCredable] marketplace partners don’t rely on your eCredable grade, we don’t recommend you pay for this alternative score.”

Instead, O’Shea recommends putting that money toward a secured credit card or credit builder loan.

PRBC

Founded in 2005, PRBC stands for Payment Reporting Builds Credit. Signing up is free, as is your access to your PRBC credit reports and scores. Its credit score is based on information gathered from both traditional and alternative sources:

  • Credit cards
  • Mortgages
  • Bank accounts
  • Utilities
  • Insurance policies

Note of caution: PRBC lists jewelry retailers, furniture stores, and electronic retailers among the lenders that use the PRBC credit score. But it is never a good idea to apply for credit from these kinds of lenders. The interest rates are not worth it and these types of loans will do nothing to build your traditional credit scores, as they likely don’t report on-time payments to the big three bureaus. On the contrary, the only type of credit you should ever seek is the kind that reports to Experian, Equifax, and TransUnion to help you build your FICO and VantageScores.

Car dealerships are also listed among those that use the PRBC score. While they may report to the big three, watch out for high interest rates on these loans. And only consider them in comparison with other lending options (i.e., shop around first).

Finally, PRBC lists landlords among those that rely on its credit score. That can absolutely be helpful, but there are plenty of other rent-reporting services out there that you can use.

Rent reporting agencies

Since rent payments are considered in both alternative and (some) traditional credit scores, it is probably a good idea for you to take advantage of these types of services. There are a number of rent reporting agencies to choose from.

Companies that use social media credit scores

A couple of years ago, the hype surrounding social media credit scoring seemed to point to a growing trend destined to infiltrate the credit scoring world. But while there are companies that use social media to help determine creditworthiness (Kreditech, Kabbage, Lenndo), it hasn’t really taken off as expected.

As explained by deBanked’s Sean Murray:

“The WSJ recently reported that lenders are backing away from social media data because it’s becoming harder to tap into and because of the potential regulatory consequences under fair credit laws…

“Companies like Kabbage have seemingly softened their stance on the value of social media anyway. ‘Who your social circle is, or whether you play ‘Mafia Wars’—we haven’t seen that as very valuable,’ Kabbage CEO Rob Frohwein said to the WSJ.”

Who uses alternative credit scores

They’re generally used by lenders who want to do business with consumers who have subprime credit. If they want to rely on the traditional credit bureaus for an alternative score, lenders may check your FICO Score XD or CreditVision Link. Other alternative credit scores may only be used if you apply for credit through that company’s lending partners (e.g., Aire, Happy Mango).

Pros and cons of alternative credit scoring

Pros

  • You get credit for positive behavior that isn’t included in traditional credits scores, like on-time utility payments and bank accounts in good standing. They may also be a better reflection of how creditworthy you are now, not years ago when you made the mistakes that are negatively impacting your score today.
  • You may be approved for loans and leases that you wouldn’t otherwise be able to qualify for.
  • You get to build your traditional credit scores when your lender reports to the big three bureaus. (Do not do business with a creditor that does not report to Experian, Equifax, and TransUnion; building up your traditional scores is the end goal.)

Cons

  • The credit you’re able to get with an alternative credit score will likely be through a subprime lender with high interest rates that you may be not be able to afford.
  • Some lenders who use alternative credit scores may not report to Experian, Equifax, or TransUnion (e.g., jewelry stores, furniture stores, electronics retailers), which means it won’t do anything to help your traditional credit scores.
  • Alternative credit scoring raises regulatory concerns. The Consumer Financial Protection Bureau (CFPB) is looking into it, concerned about privacy issues, the ability of consumers to ensure accuracy of information, and the potential for discrimination against certain groups.

What we recommend

If you have no credit or thin credit, instead of signing up on sites that generate their own alternative credit scores, we recommend you focus on your FICO Score XD and CreditVision Link through TransUnion. To establish the kind of credit that will show up on these reports, you can:

If you have bad credit, you can take the same actions outlined above to rebuild your credit through the big three. And if you haven’t already, look into the DIY credit repair process; it’s free and less time consuming than you might think.

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Credit Builder Loans: How They Work & How to Get One

August 8th, 2017 · Credit Rebuild

Credit Builder Loans: How They Work & How to Get OneTaking out a small personal loan can be a good strategy for repairing bad credit or bulking up thin credit. What’s not so clear is how bad credit or thin credit will allow you to do that. Credit builder loans might be the answer, typically ranging from $500 to $1,500. When secured by loan funds or collateral, credit builder loans do not rely on your credit for eligibility. And provided you pay as agreed, they help build your credit score.

Types of credit builder loans

1) Loan secured by loan funds

When you are approved for the loan, you don’t get the money right away. Instead, it goes into a savings account or certificate of deposit (CD) that you cannot access. You make your monthly payments on the loan and, once it’s paid in full, the money (in savings or CD) is released to you.

2) Loan secured by collateral

If you already have a savings account with a bank or credit union, then it can serve as the collateral for the credit builder loan. Your savings account gets frozen, which you only regain access to once the loan amount is paid off. You may also be able to use your car as collateral, but that’s riskier business. If something unforeseen happens, and you default on the loan, losing your car to the lender will probably hurt more than losing money.

Since you are borrowing against money — or a car — that actually belongs to you, it should mean a lower interest rate than if it’s the institution’s money that is securing the loan.

3) Unsecured credit builder loan

It is possible to get a credit builder loan without any security at all. But it will probably be harder to qualify for (as it will likely rely on your credit history) and if you do qualify, the interest rates will likely be much higher than a secured credit builder loan.

Where to find them

Don’t expect to see credit builder loans offered by big banks. They’re typically only offered by credit unions, community banks, and non-profits. And even then, they’re not the kind of thing that get much advertising. In other words, you’re probably going to have to dig for them. Here’s how.

1) If you already have an account with a credit union or community bank, ask if they offer credit builder loans. If not, then open an account with a credit union or community bank that does. You’ll likely need to have an account with them in good standing for a number of months before you can be approved for a credit builder loan, so the sooner you open your account, the better.

2) Broaden your search of credit unions, community banks, and non-profits with Community Development Financial Institutions and Consumer Action’s list of credit-builder loan programs.

3) Check out Self Lender, an online provider of credit builder loans.

How to qualify for a credit builder loan

Qualifications will vary from lender to lender.

Banks and credit unions will likely require that you have:

  • Had your account with them for a certain number of months
  • Had no recent overdrafts on your account(s)
  • Proof of steady employment
  • Proof of stable residency

Self Lender will require that you have a:

  • Bank account, debit card, or prepaid card
  • Good ChexSystems report

What they cost

As with qualifications, the cost of a credit builder loan will vary from lender to lender. Generally, though, you can expect interest rates from under 10 percent (for secured loans) to over 30 percent (for some unsecured loans). Self Lender also charges a $12 administration fee.

Of course, secured credit builder loans — held in savings or a CD — will earn interest for you, too. But the interest rate will be negligible so it won’t offset the cost of the loan by much of anything at all.

Let’s use Self Lender as an example. As Bev O’Shea explains for NerdWallet:

“Over the term of a $550 loan, you’ll pay $48.50 per month at an interest rate of 10.57%. The money is deposited in a CD, where it earns 0.10% interest. That’s a total of $31.36 you’ll pay in interest, and you’ll earn a little more than 50 cents in interest on the certificate of deposit. That means you’re spending about $31, plus the $12 administrative fee, to see the beginnings of a good credit score.”

How they help your credit

When you take out a credit builder loan, the lender agrees to report your payment history to the credit bureaus every month. Ask about this specifically. Because if they do not report to the bureaus, it is not a credit builder loan. And if they don’t report, it won’t help your credit and you’ll be paying on a loan for no good reason at all.

If you are credit invisible, this monthly reporting will help you get on the credit map. Note, you’ll start with a FICO Score XD and be upgraded to a traditional FICO Score after 6 months. As for VantageScore, you can expect a score to be generated after 30 days.

If you already have credit, it should give your score a boost, though there is no guaranteed number of points you can expect it to improve.

Of course, getting any good out of all this depends on you pay on time. Lenders are going to report your payment history either way so, by all means, don’t pay late. The only thing worse than having no credit is having bad credit. And the only thing worse than having bad credit is getting behind on a loan that ends up dropping your score even more.

Pros and cons of credit builder loans

Secured credit builder loans

Pros

  • You don’t need good credit (or any credit) to qualify
  • Interest rates are lower than unsecured credit builder loans
  • Timely payments will help improve your credit
  • As an installment loan, it can help your credit mix

Cons

  • The loan funds are frozen in a savings account or CD that you cannot access until you have made all of your payments
  • Though the interest rates are lower than unsecured credit builder loans, improving your credit is still costing you money

Unsecured credit builder loans

Pros

  • You get the loan funds right away
  • Timely payments will help improve your credit
  • As an installment loan, it can help your credit mix

Cons

  • They’re harder to get if you have bad credit, or no credit
  • Interest rates are usually much higher than secured credit builder loans

Credit builder loan tips

Apply for a secured credit builder loan

Unless you need the money for an emergency situation — like car or home repairs, or medical bills — don’t apply for an unsecured credit builder loan. Yes, it’s nice to have the loan funds released to you immediately, but the accompanying interest rates may be too steep. Opt instead for the lower-interest secured loan, which means the money is not accessible to you until after you have made all of your payments. If you’re able to secure the loan with your own money, great. If not, a loan secured by the loan funds is still a good deal, with interest rates typically lower than the unsecured version.

Do not mistake payday or title loans for credit builder loans

They won’t check your credit — and you’ll get the money right away — but the interest rates on payday and title loans are astronomical. Also, they do not report to the credit bureaus (unless you default and what you owe goes into collections), so there is zero chance payday loans or title loans will do anything to help your credit. In fact, chances are good they will only make your financial situation much worse.

Get the facts about payday loans and title loans.

Make sure you know what you’re getting into

Before you sign on the dotted line, make sure you know:

  • The interest rate
  • Your monthly payments
  • Length of the loan
  • How much the loan will end up costing you
  • Late payment fees
  • When late payments are reported to the bureaus
  • What will happen if you default on the loan

And, again, be sure the lender reports to the credit bureaus.

Pay on time, every time

Just one late payment on your credit report can drop your score by 100 points. So, by all means, pay your credit builder loan on time. If you’re not certain you’ll be able to this — especially if you’re already struggling to make ends meet — don’t take out a credit builder loan until you’re more financially stable. The risk of missing payments is just too great, as is the possibility of making your credit even worse.

Don’t pay it off early

 

As good as it might feel to pay off your credit builder loan early, even if you have the money to make it happen, don’t do it. Sure, you’ll save on the interest fees, but you’ll also miss out on logging additional on-time payments.

Note, this advice does not apply to other loans going forward. In general, it is always a good idea to pay off debt as soon as possible. It not only saves you money in interest fees, but also lowers your credit utilization ratio.

Get a secured credit card, too

While a credit builder loan can be a great alternative to a secured credit card (and vice versa), having both can give your credit an even bigger boost. You’ll not only benefit from having multiple credit accounts through which to build positive credit history. It will also give you a credit mix — an installment loan (the credit builder) and revolving credit (the credit card) — which counts for 10 percent of your FICO Score and is “highly influential” on your VantageScore.

Though you will have to come up with the initial deposit to secure the credit card, they’re available for as little as couple of hundred dollars. That money gets set aside into a secure account (though not one that earns interest, like the credit builder loan savings account or CD does), and you get it back when you upgrade to a traditional card.

You build credit by using the card at least once a month and returning the balance to zero every month. As with credit builder loans, though, just be sure to apply for one that reports to the credit bureaus.

Learn more about secured credit cards and shop around for the best deal.

Supplement with other credit building strategies

While a secured credit card makes a great pairing with a credit builder loan, there are a few other options you might want to consider:

  • Ask to be an authorized user on someone else’s credit card
  • Get someone to co-sign on an auto loan (assuming you actually need a car)
  • Ask your landlord if they will report your on-time rent payments to a rent reporting service

It’s also important to monitor your credit – not only to be sure your positive credit is being reported, but also to catch and dispute mistakes that could be hurting your credit.

Get more detailed tips in 9 No-Nonsense Ways to Build the Best Credit.

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How to Build Credit for Your Business

August 1st, 2017 · Career

Building Credit for Your Business: What You Need to KnowAfter building good consumer credit for yourself, if you own a company, the next step is building good credit for your business. Find out how consumer credit plays a role in that, what business credit reports and scores look like, how to check them, and good credit-building practices.

What is the difference between business credit and consumer credit?

Consumer credit represents your creditworthiness as an individual. Business credit – also known as commercial credit – represents the creditworthiness of your company.

Will your business credit affect your consumer credit, and vice versa?

Impact of business credit on consumer credit

If you apply for a business credit card or small business loan, you will likely be required to provide a personal guarantee. (The same may be true of commercial leases, car loans or leases, equipment leases, etc.) This means that, in the event that your business does not meet its financial obligations, you will be held personally responsible for it.

As explained on the U.S. Small Business Administration website:

“If you give a guarantee for company debt, such as a business credit card, your failure to pay if the company can’t will adversely impact your consumer credit rating. In most cases, small business owners are required to provide personal information when their companies apply for a credit card. And, in some cases, if the company fails to make required payments, this action can show up on the owner’s consumer credit report.

“Check whether providing your personal information on a company’s credit card application makes you jointly and severally liable for the debt. This means you are just as liable for the balance as the company; the credit card issuer can come after you without exhausting collection activities against the company.”

Impact of consumer credit on business credit

If you fall behind on a consumer credit account, your business will not be held liable for the debt and it will not show up on your business credit reports or be used in business credit scores. However, your consumer credit is often used by lenders when deciding whether to grant you credit for your business. So, in this way, bad consumer credit will make it harder for you to build good business credit.

Which credit bureaus keep track of business credit?

Of the big three credit bureaus that monitor consumer credit, two of them also monitor business credit – Experian and Equifax (TransUnion being the exception). Dun & Bradstreet rounds out the big three for business credit monitoring. Though not a credt bureau, it’s worth noting that FICO also has its own Small Business Scoring Service (SBSS).

Where do credit bureaus get the information included in business credit reports?

To compile business credit reports, credit bureaus gather information from:

  • Vendors
  • Banks
  • Business credit card issuers
  • Data gathering trade associations
  • Public records

What is included in business credit reports?

All three credit bureaus organize their credit reports a little differently, but they call include the same basic information:

  • General company info
    • Business name, address, phone number
    • Parent company, subsidiaries, branches
    • Key personnel
    • Business type
    • Date credit file established
    • Years in business
    • Total employees
    • Date of incorporation
  • Financial overview
  • Credit scores
  • Risk factors
  • Vendor tradelines
  • Credit cards
  • Loans
  • Payment history
  • Accounts in collections
  • Public records (judgments, tax liens, bankruptcies)
  • Credit inquiries

Take a look at sample business credit reports from Experian and Dun & Bradstreet.

How are business credit scores calculated?

The three big bureaus that calculate business scores use algorithms that draw from various information in your credit reports. This is similar to what the credit bureaus do to calculate consumer credit scores. One big difference, though, is FICO – an algorithm used by Experian, Equifax, and TransUnion. The bureaus that monitor business credit do not use the FICO model; to figure your credit score, Experian, Equifax, and Dun & Bradstreet each use their own unique algorithm.

What are business credit score ranges?

Unlike FICO and VantageScores used for consumer credit – which both use the 300-850 credit score range – the bureaus’ business credit score ranges are more varied.

Experian

Credit Score: 0-100

Equifax

Payment Index: 0-100

Credit Risk Score: 101-992*

Business Failure Score: 1000-1610*

Dun & Bradstreet

Paydex Score: 0-100

  • 80-100 – Low risk
  • 50-79 – Medium risk
  • 0-49 – High risk

Commercial Credit Score: 1-5

Financial Stress Score: 1-5

How do you check your business credit?

Unlike consumer credit reports – which you are legally entitled to see for free once a year through AnnualCreditReport.com – there is no such requirement for business credit reports. To see them, and your credit scores, you are going to have to pay for them.

You can order business credit reports and scores directly through the big three credit bureaus that monitor business credit. Each bureau comes with multiple choices:

Dun & Bradstreet

To check your own credit, D&B recommends:

  • CreditSignal – Free
  • CreditBuilder Plus — $159/month
  • CreditBuilder Premium — $199/month
  • Credibility Concierge – N/A (call for details)

Compare these products.

To check the credit other businesses, D&B recommends:

  • Credit Evaluator Plus — $61
  • Business Information Report — $121
  • CreditAdvisor — $188
  • Credit Reporter Plus – $799 (for five reports)

Compare these products.

Equifax

  • Single credit report — $99.95
  • 5 credit reports — $399.95 (yours and four other businesses whose credit you’d like to check)

Experian

  • CreditScore Report — $39.95
  • ProfilePlus Report — $49.95
  • Business CreditAdvantage — $149/year
  • Business CreditScore Pro — $199/month

Do you need to check your business credit with all three bureaus?

Yes. You never know which credit bureau a creditor is going to report to. Similarly, you never know which bureau a potential vendor, business partner, or customer is going to check when deciding whether to work with you. For this reason, you need to be sure your business credit is being reported accurately and, when it’s not, that you dispute it accordingly.

Can you dispute errors on your business credit reports?

Yes. If you discover a mistake on a business credit report, you can dispute it with the appropriate credit bureau. (Note, do not dispute general company information that simply needs to be updated, like a change in key personnel, the number of employees, or address; scroll down for updating instructions.)

Experian Disputes

Circle the mistake on your credit report and mail all of the following to Experian:

  • The credit report (with the error circled)
  • Cover page that includes your full business name, current and previous addresses, email, a request that they investigate the circled item, and an explanation of why you believe this information is inaccurate
  • Copies of any supporting documentation you can provide that proves the error is incorrect

You can email it to BusinessDisputes@Experian.com, but we recommend you send it via regular mail (with return receipt requested) to:

Experian Commercial Relations
P.O. Box 5001
Costa Mesa, CA 92628

Upon receipt, Experian will work with the data furnisher to investigate the accuracy of the information. They say it usually takes about 30 days to complete the investigation, but could take longer. If a change is made, you will be notified in writing.

Learn more about the Experian dispute process.

Equifax Disputes

To dispute an error on your Equifax business credit report:

  • Login to your Member Center account
  • Choose an option for contacting them about your dispute
  • Fill out the Research Request Form provided to you
  • Send the form to Equifax as directed

Equifax will request verification of the disputed item from the data furnisher. Once the investigation is complete – usually between 45 and 60 days – you will be notified, in writing, of the results.

Learn more about the Equifax dispute process.

Dun & Bradstreet Disputes

To dispute an error on your Dun & Bradstreet business credit report:

  • Call customer service: 800-234-3867
  • Tell them you found an error on your credit report
  • Follow their instructions

How do you update general company information with the credit bureaus?

Do you have a new CEO? Have you hired more employees? Have you moved to a new location? Changes like these need only be updated, not disputed. For instructions specific to each bureau, see links below:

Experian updates

Equifax updates

Dun & Bradstreet’s iUpdate

Who can check your business credit?

Anyone. While access to your consumer credit reports and scores is limited, that is not the case with business credit. Provided they pay the fee, anyone can see your credit reports and scores. This includes creditors, of course, but also potential vendors, customers, and business partners who want to check your creditworthiness before working with you.

How do you build good business credit?

1) Clean up your consumer credit

When you apply for a business credit card or loan, expect credit card issuers and lenders to look at your consumer credit. If it’s good, great. If it’s bad, you need to take steps to repair it. Fortunately, it’s something you can do on your own, for free. Learn everything you need to know about DIY credit repair.

2) Get a D&B D-U-N-S Number

You’ll need this for Dun & Bradstreet to be able to set up your business credit file. Learn more about the D-U-N-S number (and how to get one).

3) Set up tradelines with vendors that report to the credit bureaus

Of course, if you don’t already have business credit, then it could be a tough sell getting a vendor to extend credit to you. Your best bet is to bring it up with vendors that you already do business with (and who report to the bureaus, or are willing to). The longer your history with them, and the more you order from them, the better your chances for being approved.

4) Apply for a business credit card

Shop around the same way you would for a consumer credit card. Look at fees. Look at interest rates. Look at rewards. Look at the kind of credit you need to qualify for the card. Make sure the credit card issuer reports to credit bureaus. And, by all means, look at the fine print. Use credit card comparison sites like Nerdwallet, WalletHub, and Bankrate.

5) Apply for a small business loan

Check with your bank, research online lenders, and look into the loans through the U.S. Small Business Administration (SBA). And, again, make sure the lender reports to the credit bureaus (SBA lenders are required to do so).

6) Pay your bills on time (or early)

Having your credit lines reported to the bureaus is only a good thing if your creditors have good things to report. That means paying your bills on time, every time. In fact, it’s a good idea to pay early. Case in point, you have to pay early to get a perfect score from Dun & Bradstreet.

7) Be mindful of negative public records

Judgments, tax liens, and bankruptcies will devastate your business credit.

8) Monitor your business credit reports

Mistakes happen. It could be an error, or simply an omission. Either way, inaccuracies on your credit reports can do unnecessary damage. So make sure you check your credit reports regularly:

  • Are all of your vendor tradelines, credit cards, and loans being reported to the bureaus as agreed? If not, contact the vendor or creditor and find out why they are not being reported.
  • Are all of your timely payments being reported accurately? If something is showing paid late for a vendor you know you paid on time, that’s something to dispute.
  • Are other details about your vendor tradelines, credit cards, and loans being reported accurately? Like the original balance, the remaining balance, or the scheduled amount due? If not, again, that’s something to dispute.
  • Is there general information about your company that need to be updated? Check your address, key personnel, number of employees, etc.

Note, refer to previous sections for details on how to monitor your business credit reports, how to dispute inaccuracies, and how to update general company information.

If you’re overwhelmed by all this, keep something in mind: The same way that managing consumer credit becomes second nature, the same will be true of your business credit. Just take it step-by-step and, in time, you will see your company’s creditworthy reputation grow.

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