Tradeline is crucial for every entrepreneur that wishes to establish business credit. You might have heard about tradelines but finds it difficult to understand what it is all about. This article will explain tradeline in clear terms and show you how your business could benefit from it.
What are Business Tradelines?
In simple terms, a business tradeline is a type of account that details the financial transactions between a business and its vendor. Such “accounts” often include loans, lines of credit and credit cards. It also consists of data derived from vendors when they submit reports to credit reporting agencies. For instance, when a business that offers a net-30, or net-60 payment terns reports such data to a credit bureau, it forms a business tradeline.
Why are tradelines important?
Since the tradelines provide data regarding your previous credit transactions, it serves as a vital resource for building credit. This is the type of data that credit score models used to calculate a credit score, which is simply a prediction of creditworthiness. A typical example is a Paydex Score that uses three tradelines to determine its ratings.
What About Seasoned Tradelines?
The accounts that have an established credit history are called “Seasoned Tradelines.”. In fact, some companies sell seasoned tradelines to business owners who use it as a resource for establishing credit in record time. The procedure is explained below.
The “established tradeline” vendor registers a company and opens accounts for it with the sole aim of selling the company. After that, they hype the “shelf corporation” to businesses with a promise that it would give access to a massive amount of credit lines. However, this assertion is not always accurate because the credit line that was established might not align with the funding requirements of a new business. Worse still, if lenders suspect that a company is attempting to use such tricks, the suspicious accounts will be closed immediately.
Levi King, the CEO of Nav, a business that connects small businesses with financial institutions, refers to such schemes as shady. King says there might be credible reasons for buying a shelf corporation, but using such plans to access business funding is inappropriate. Perpetrators of such schemes are immediately disqualified by lenders.
What is the Best Approach?
Companies benefit from having strong business credit because it opens up opportunities to access better business funding. It also helps you separate your personal credit from business credits to prevent the risk of personally guarantying the funds you borrow for your business.
Now that you know the benefits of establishing a tradeline, it’s time to get started. Follow the steps outlined below.
- Get a business credit card. Transactions on such cards will be reported to commercial credit agencies.
- Create an account with lenders or vendors that report to business credit agencies. You can find these companies when you open a free Nav account and use the Business Launcher tool to search for business credit building agencies.
- Make sure you pay your credits on time. Better still, make the payments before the due date. That is the way to establish a high business credit score.