Understanding your business credit report is important for any business owner. Your business credit report is a powerful tool that can help you make informed decisions about how to manage and grow your business. It contains information about how you manage your finances and how creditors view your company’s creditworthiness. Knowing how to read and interpret the data in your business credit report will provide you with an accurate picture of your financial health, allowing you to make smarter, more informed decisions and build a strong foundation for success.
What is a business credit report?
A business credit report is like a report card for businesses. The report tells other people what kind of job your business has been doing. The report shows how much money your business makes, how punctual you are in paying bills, and whether you have had any problems with customers or the government. Your business’s credit score is like a grade that tells people if they can trust you to pay them back when they loan you money. For example, if you have good grades on your report card, it means that your parents can trust you to do well in school and therefore they will give you more privileges. In the same way, if your business has a good credit score, then banks and other lenders may be willing to lend it money because they know it can be trusted to pay back on time.
A business credit report is a document that provides an overview of a company’s creditworthiness, payment history, and financial status. It is similar to a personal credit report but focuses on the financial aspects of a business. Lenders, suppliers, and other creditors use this report to assess the risk associated with lending or extending credit to the company.
The information in a business credit report is compiled from various sources such as public records, financial statements, trade references, and credit bureaus. The report consists of several sections including company information, payment history, legal filings such as bankruptcies or liens filed against the company and any collections accounts. Other factors that can impact a business’s credit score include how long they have been in operation and their industry trends.
Having good business credit can be essential for securing loans or financing for growth opportunities.
What is a business credit score?
When starting a business, it is important to understand the various financial metrics that will be used to evaluate your company’s creditworthiness. One of those metrics is known as a business credit score. Similar to a personal credit score, this number represents how reliable and trustworthy your business is in terms of paying back debts and loans.
There are several factors that go into calculating a business credit score. Payment history carries the most weight, as any late or missed payments can significantly lower the score. The size of your company also plays a role, as larger businesses typically have more stability and resources to make timely payments. Other factors include the age of your business, industry trends, and overall financial health.
Having a good business credit score can open up many opportunities for your company.
Why do I need a business credit score?
A business credit score is like a report card for your business. It helps people know how well your business does and if it’s a good choice to do business with. Think of it like when you go to a new school and the teacher wants to know about your past grades so they can know what kind of student you are. Your business credit score is like that, but for businesses instead of students.
The higher your score is, the better chance you have of getting a loan or other financial help from banks and investors. Imagine if you wanted to borrow money from your parents – they would probably want to make sure you could pay them back first! So they would look at things like your past grades and extracurricular activities before deciding if they should lend you money. Businesses do the same thing – they look at a company’s credit score before deciding if they should give them money.
There are multiple reasons to establish and build business credit. Here are a few:
- Better terms on business loans: A solid business credit score can increase your chances of landing a small-business loan or line of credit at favorable terms.
- Lower business insurance rates: As your company grows, business insurance costs can get expensive. A high business credit score may help keep rates lower.
- More favorable payment terms with vendors: Trade credit terms — how long you have to pay a vendor or supplier after receiving good or services — can range from 30 to 90 days. Where you fall on that spectrum depends heavily on your business credit score.
Factors that impact a business credit report.
The components that determine a consumer score are the same no matter which credit agency you consult. However, a business credit check can return some wide-ranging results depending on which agency issued the report and the type of report you order. The main elements that account for your credit score include:
- Credit: The number of trade accounts you’ve used, the total balances outstanding, your payment habits, credit utilization and trends over time.
- Public records: Whether your business has a history of liens, judgments or bankruptcies and the recency and frequency of these types of negative items.
- Demographic information: How long you’ve had a business credit file, your industry and company size.
There are also several factors that impact the report.
One factor is payment history. This means whether or not companies pay their bills on time. Just like you need to turn in homework on time to get a good grade, businesses need to pay their bills on time to get a good business credit report.
Another factor is how much debt the company has taken on. This could be things like loans for new equipment or investments in new products. Companies that take on too much debt may struggle to make all of their payments and could have lower scores on their business credit reports.
Finally, the size of the company matters as well because larger companies typically have more resources and customers than smaller ones do. So bigger companies usually have better chances at getting loans than smaller ones do because they show they can handle more money and responsibility.
What information will you need to check your credit score?
Before you can check your credit score, it’s important to gather some information that will be required by the credit bureaus. You will need to provide information such as your business name, your ZIP code and your email address. You’ll also need to verify your identity by providing your home address, your date of birth, your phone number and your Social Security number. You may also need to answer some security questions based on your loan history, your work history or previous addresses you may have had.
How to check your business credit report.
As a business owner, it’s essential to keep track of your credit score. In the same way that personal credit scores are used by lenders and creditors to determine financial risk, business credit reports are used in assessing the creditworthiness of businesses. A good business credit score can give you access to better loans and funding options, while a poor score can limit your ability to secure financing.
Checking your business credit report is necessary for monitoring any potential errors or inaccuracies that could negatively impact your score. These errors could be as simple as outdated information or incorrect payment histories listed on the report. Catching these mistakes early allows you to take action before they affect your ability to obtain loans or other forms of financing.
Below are three steps on how you can check your business credit report.
Find your Federal Tax ID number or EIN.
An Employer Identification Number (EIN) is a nine-digit number assigned by the IRS. It’s used as a federal tax ID number for businesses, much like a Social Security number is used to identify individuals. Some business credit reporting agencies will use your EIN to track your business, so have it available before you begin your search. If you don’t have an EIN, you can apply for one online.
Visit one of the big three credit reporting bureaus
It’s a good idea to check your business credit report with each of the three major business credit reporting agencies. While personal credit reports tend to be similar across agencies, the same can’t be said for business credit reports.
Equifax Business Credit Reports may also be used in business financing decisions. For $99.99, you can pull one Equifax report and get access to your Equifax Business Credit Risk Score and Equifax Business Failure Score. You can also buy your information in a bundle of five reports for $399.95, which breaks down to $79.99 each. To get a business credit report from Equifax, you’ll have to provide some basic information about your business to access the score.
To order a business credit report from Experian, start by entering your business’s name, city, state and country in the box on the right-hand side of the screen. You’ll also need to indicate whether the information entered is for your own company or another company. This search will tell you whether Experian has a credit report on file for your company.
- Dun & Bradstreet
Dun & Bradstreet, or D&B, generates both reports and scores for businesses that have credit files with them. But you’ll need to put in a bit of work to create this file, or it could appear incomplete.
Dun & Bradstreet helps you collect and analyze status reports, monitors your business financial records, and offers other services to help you control your credit. Their top-tier CreditMonitor plan costs $39 per month, while their CreditSignal Plus plan starts at $15 per month. Their CreditSignal plan, nwhich you can sign up for for free, includes unlimited manual and automated updates.
Review your business credit report
Once you have your business credit report in hand, review it to see what it includes and check for errors. The makeup of the report will depend on which report you ordered, but Experian has a sample report that should give you a good idea of what you’ll find.
If you find any errors on your report, let the credit rating agency that issued the report know. The procedures for disputing information on your credit report vary by agency, so check its website for instructions.
For example, Experian recommends:
- Circling the incorrect information on the report
- Adding a brief explanation of why the information is incorrect
- Supplying correct information or supporting documentation
- Attach the report to a cover page with your full business name, current and previous addresses, email and a short note asking them to investigate the error
- Email it to BusinessDisputes@Experian.com
The company completes most investigations within 30 days, although complicated issues might take longer to resolve.
Steps to building your business credit.
- Form an LLC.
If you are sole proprietor, creating an LLC can help you separate your business finances from your personal finances. The process for establishing an LLC varies from state to state, so check with your state’s Secretary of State to learn about the requirements.
- Get an EIN and a DUNS number.
f you don’t yet have an EIN, apply for one online at IRS.gov. It’s also a good idea to get a DUNS Number from Dun & Bradstreet. DUNS stands for Data Universal Numbering System, and it’s a system developed by D&B to give a unique, nine-digit identifier to businesses. You might already have a DUNS number if you filed as a legal entity with your state and obtained a business license. If not, you can request a DUNS number online, for free, by providing some basic information, including your business name, address and phone number.
- Apply for a business credit card.
The majority of business credit card issuers report to one of the three major business credit score agencies, but not all of them do. If you wish to construct business credit your primary motive for applying for the credit card, you might want to check with the issuer prior to application. Once you get the card, use it responsibly by paying your bills on time. This is one area where business credit is similar to personal credit: a history of on-time payments is essential.
- Open a vendor account.
Some companies that sell things like office and shipping supplies and even coffee and snacks grant their customers a small line of credit with net 30 terms, meaning payment is due 30 days after the invoice date. Then you simply buy your supplies on credit and pay invoices by the due date. Within a few months, these accounts should show up on your business credit report.
How are business credit scores calculated?
As a business owner, one of the most important factors that can determine your success is your business credit score. Your credit score reflects how well you manage your finances and repay debts, and it can impact everything from getting approved for loans to securing contracts with vendors or suppliers. But how exactly are business credit scores calculated?
It’s worth noting that there are several different credit bureaus that calculate business credit scores, including Dun & Bradstreet, Experian Business Credit, and Equifax Business Credit. Each bureau uses its own algorithm to calculate scores based on a range of factors such as payment history, outstanding debts, public records (such as bankruptcies), length of credit history and more.
Business credit bureaus typically collect payment information from sources such as vendors, banks, data-gathering trade associations and business credit card issuers.
Scoring models vary among the bureaus, but they each typically look at the following factors:
- Payment history to creditors and vendors.
- The size and age of your company.
- Age of your oldest financial account.
- Credit utilization.
- Established trade lines.
- Risk of failure in your industry.
In conclusion, it is important to understand the components of a business credit report and how they are used by lenders. Knowing your business credit score and what factors affect it can help entrepreneurs make more informed decisions about taking out a loan or securing other forms of financing. It’s also wise to regularly monitor your credit report for errors or signs of potential fraud. Taking the time to understand your business credit report will help you secure the best possible terms when seeking financing for your small business.