How to Use Vendors to Build Business Credit
If you are a business owner, you know that one of the primary benefits of using a vendor credit line is that you get the products/services you need to get or keep your business running while deferring the payments to a later date.
However, you may not realize that vendor credit lines can also build your company’s business credit file. This is a great way to prove that your business can take care of financial responsibilities. Then, if you reach a point where you need to apply for a business loan or other financing, the lender will see your positive payment history when they pull your credit report to determine creditworthiness. This will make it more likely for you to get approved for the financing you need.
Unfortunately, one of the biggest mistakes business owners make is using these credit lines from a vendor that does not report the positive payment history to the credit bureaus so it shows on their credit file. Before applying for a business credit line with a vendor, there are three things that you must verify.
High credit Reported
We will take a closer look at each of these factors below.
There are over 500,000 vendors that extend credit to businesses. However, less than 6,000 of them report to the credit bureaus. Therefore, if you want to build your business credit, it’s necessary that you carefully choose your vendors. You want to make sure that they report to the credit bureaus. If they are not reporting, it won’t help you build your business credit history. In addition, you want to pay attention to the business credit bureaus that the vendor reports to.
The next thing you need to look at is how often the vendor reports to the credit bureaus- you want one that reports monthly. This is critical because some vendors only report quarterly and some only report annually. If your payment history isn’t reported for several months- or even a year- it has a significant effect on how quickly your business credit history is built.
High Credit Reported
Some vendors will report the balance owed as your high credit limit instead of the true credit limit you were approved for.
For example, if a vendor approves you for a $2,000 credit limit and you only spend $150 of it, they may report it like this:
High Credit: $150
Instead, they should be reporting like this:
High Credit: $2,000
Ideally, you should choose a vendor that reports the true high credit limit that you were approved for instead of just the balance you owe. This can have a significant impact on credit limit recommendations that are suggested for your business.
If you are interested in learning more about how to build business credit using vendors, contact Masters Commercial Capital Group. We will be more than happy to walk you through the process of learning to build your business credit.