To establish or repair business credit can be important for business owners for many reasons. Being personally liable for lines of credit is a first step with many small businesses. But as that business grows, one of the advantages is that a business can stand on its own creditworthiness for loan applications. That financial finish line is one that many owners envy and strive for, but can be hard to reach if you need to repair business credit.
Many people don't understand the similarities and differences between personal credit and business credit. While there are a few similarities, there are some big differences that are important to note, especially when you are interested in or need to repair business blemishes on your credit report.
If you're wondering how to repair business credit, consider using the following tips.
1. Send a debt validation letter to help repair business credit.
There are three different credit agencies that report and repair business credit: Dun and Bradstreet, Equifax and Experian. A debt validation letter is very similar to a credit inquiry dispute. You are writing to the creditor and asking them to verify the delinquency.
You can also send a similar request to the credit bureau as well. Interestingly enough, some trade vendors don't report to credit agencies in the first place, so this interaction could be simple, yet impactful.
2. Look out for notices from the credit agencies.
Unlike with personal credit, business credit agencies are known to send out notices if a derogatory mark is impending on your report.
"Notifications are helpful to a busy business owner who may not be aware of a pending delinquency," says Ty Crandall of Credit Suite, but he cautions business owners from relying on such notifications.
3. Request that paper deletions occur when you settle a business debt.
On your personal credit reports, if you have an outstanding delinquent balance, you may do an offer and compromise for less than the amount of the debt. However, that transaction, which is called a paper deletion, will not show that the balance was paid in full.
That is different when it comes to business credit. "If you settle a debt for less than the full balance, it can be removed from your business credit report," Crandall says. The credit agencies don't have any interest in holding your credit hostage and neither do the vendors—they just want their debt paid.
4. Consider keeping your total business credit usage under 30 percent.
According to small-business advisor S.E. Day, your "personal and business credit [should] only use up to 30 percent of your total lines of credit." Having the ability to use credit and exercising restraint from maxing out the line can be an essential tool for establishing and reestablishing credit.
5. Accentuate and update the positive information on your business credit report.
Business credit, unlike personal credit, has very little information that is reported. Your personal credit has credit card debt, educational debt, mortgage loans, etc. Business credit however is only the vendors that extend you credit. Thus, those numbers can be very malleable and can be subject to great change.
Whenever you pay down a credit line, make sure that you report it directly to each of the three major business credit agencies. You can ensure that your credit is updated with positive information to detract from the one or two blemishes that may appear.
Read more articles on financing.
The information contained in this article is for generalized informational and educational purposes only and is not designed to substitute for, or replace, a professional opinion about any particular business or situation or judgment about the risks or appropriateness of any financial or business strategy or approach for any specific business or situation. THIS ARTICLE IS NOT A SUBSTITUTE FOR PROFESSIONAL ADVICE. The views and opinions expressed in authored articles on OPEN Forum represent the opinion of their author and do not necessarily represent the views, opinions and/or judgments of American Express Company or any of its affiliates, subsidiaries or divisions (including, without limitation, American Express OPEN). American Express makes no representation as to, and is not responsible for, the accuracy, timeliness, completeness or reliability of any opinion, advice or statement made in this article.