Your business credit history, as documented in your business credit report, is an essential tool used by banks, online lenders, loan companies, suppliers, and credit card companies approved by the Small Business Administration to determine the creditworthiness of organizations and to determine whether to offer them business loans or other financing. The information contained in a report provides the important details needed to make informed credit decisions.
Business credit reports are also checked by insurers when they underwrite policies. Good credit is a sign of a responsibly run business, which earns lower premiums.
This article explains what you need to know about your business credit history, as well as steps you can take. Improve your business credit report and business credit score,
Business Credit History: The Basics
Your business credit history and related credit reports contain information that financial institutions, lenders, suppliers and credit grantors need to decide whether a small business is an appropriate credit risk.
It indicates whether a company can meet its contracted financial obligations based on its payment history and other public information.
How is the information in a business credit report used?
The data in a small business credit report is an important factor in securing the funding you need to successfully run and grow your company, whether it’s a term loan, business line of credit, business credit card or other funding.
This can have a significant impact on the following financial decisions:
- how much credit or funding the bank or lender will provide you
- your repayment terms
- interest rates you pay
- How much business credit will a supplier give you?
- How potential customers and clients view your business
- insurance premium you pay
- even more.
Clearly, your business credit history can have a big impact on your company’s future finances.
Which Companies Monitor Business Credit History?
business credit reporting agencies, including Dun and Breadstreet, FICO, experian commercialAnd Equifax Small Business Collect data on millions of businesses. They compile that data into a business credit report for each company. All of the information on a company’s report is used to calculate a business credit rating.
What information is included in a business credit report?
Business credit history typically includes the following business information:
- Number of Employees
- Annual Sales and Revenue
- subsidiaries and affiliated companies
- historical trading data
- business registration details
- government activity
- business operations data
- industry classification
- Public filings including lien, judgment and UCC filings
- past payment history
- Number of accounts reporting to the agency about the business and details.
Typically, all business credit reports contain similar information. However, each business credit reporting agency has its own methods of collecting, verifying and evaluating data.
The first section of a business credit report is the company profile or information section. It lists the company’s legal name, address, incorporation details, ownership, supporting information and number of employees.
The business credit information section includes financial data such as annual sales. It may also include a financial statement.
The Payment History area provides information about how a business has paid its bills over the past several years, including invoicing activity, outstanding balances, payment terms, and credit limits.
The Public Records section has a list of legal filings, bankruptcy, collections, and UCC filings. Any legal judgment or collection activity in this section will be viewed negatively by financial companies, lenders and insurers.
Finally, the business credit agency will issue a business credit score or rating that indicates how likely the company is to pay back its debts and meet its financial obligations.
Business credit histories, reports and scores reflect a company’s financial strength and stability. Small business owners must establish records of on-time payments in all of their financial obligations — and maintain a clean legal record — to build a solid credit report and score.
Be aware: Anyone can check a business credit score, unlike consumer scores, which are restricted to anyone with a permissible purpose under federal law, such as loan providers, insurance companies and rental agencies.
What is a good business credit score?
Personal credit scores indicate the creditworthiness of individuals. Business credit scores do the same for companies. Personal credit scores range from 300 to 850. Business credit scores differ depending on the credit reporting company.
- intelliscore plus℠ from experiment Scores range from 1 to 100. A high score on your Experian business credit report, usually over 80, indicates a low risk to lenders. These scores consider more than 800 variables, including tradeline and collections information, public filings, new account activity, key financial ratios and other performance indicators.
- Dun and Breadstreet Provides a score on a scale of 1 to 100, with 100 being the top PAYDEX score. A score of 0 to 49 indicates a high risk of late or missed payments; 50 to 79 is moderate risk; 80 to 100 predict a low risk.
- Equifax Business Credit Risk Score From 101 to 992. A score of 556 or higher is generally considered good credit.
- FICO® LiquidCredit® Small Business Scoring Service℠ Rank-order loan applicants by likelihood of avoiding late payments. Scores range from 0 to 300. The higher the score, the better. Scoring is based on both personal and business credit data and other financial information. A strong history of timely payments to vendors and suppliers can help boost your SBSS rating. A score of 140 or above is considered good.
if your business credit score not high enoughFocus on paying bills on time, growing your savings, improving business cash flow, and increasing your annual revenue. This will help you qualify for financing with favorable interest rates and loan terms.
Business Credit Report vs Personal Credit Report: The Difference
Business and consumer credit reports serve similar purposes. They provide lenders with the information needed to determine the likelihood of repaying a loan or other type of business financing. They differ in their information and their reach.
Business credit reports contain a variety of information about a company, such as ownership, subsidiaries, company finances, company size, risk score, company payment history, and tax liens or bankruptcy. Business credit bureaus begin collecting information for a company’s credit report as soon as it is incorporated, receives a federal tax identification number, and receives a DUNS Number, Unlike consumer reports, business reports are public information. Anyone can access them, including insurance companies and consumer research organizations they are considering doing business with.
In contrast, a consumer credit report only includes information about an individual’s personal finances, such as their credit, closed, and outstanding accounts, credit utilization, along with any liens or bankruptcies. Your personal credit file can only be accessed by individuals and organizations that have a permissible purpose of viewing them. Consumer credit monitoring and reports are available through Experian, TransUnion and Equifax.
Business Credit History: The Bottom Line
Your business credit score can make or break your company. If it’s too low, you may find it impossible to get proper financing. If it is high, you will be able to qualify for financing at low interest rates with favorable terms that can help your business grow long into the future.