A business credit bureau keeps tabs on businesses. The business credit reporting bureaus collect data from various sources, including information from lenders about payment history and information from other creditors, such as suppliers.
There are three major business credit bureaus, plus a few others. The bureaus also collect information from business credit reporting agencies about bankruptcies, liens, and judgments involving businesses. They get that information from public records.
As you know, information about a business’s financial stability is only as good as the data supplied. You should check your business credit report at least once a year.
Top Business Credit Reporting Bureaus
Each credit reporting agency has a focus. For example, your FICO Small Business Scoring Service credit reporting agency will include your personal credit score.
The big three business credit bureaus are Dun & Bradstreet, Equifax, and Experian. Each of those business credit agencies includes information from lenders, suppliers, and vendors. Each business credit reporting agency uses the Small Business Finance Exchange (SBFE) report to gather data.
Here are more specifics about the Big 3 and 2 other business credit bureaus and reporting agencies:
1. Dun & Bradstreet
The Dun & Bradstreet business credit scores are a mainstay of business credit bureaus. The Dun & Bradstreet business credit report uses a comprehensive business data focus on vendor and supplier transactions and other business-to-business data, which are key indicators of a company’s financial health. Dun & Bradstreet credit reports are viewed by potential business partners, lenders and other businesses. Dun & Bradstreet credit scores are given a rating called a Paydex score. The Paydex score is based on a compilation of information including trade payment history, business loans outstanding, and business loan payment habits, among other factors.
2. Equifax
Equifax is another well-respected name in business credit bureaus with its Equifax business credit reports. Equifax business credit scores are a compilation of small business lender reports and lender credit history information, as well as data regarding liens, bankruptcies, and judgments. As one of the big 3 business credit reporting agencies, Equifax is a reliable commercial credit bureau.
3. Experian
The Experian business credit score is compiled from lenders and trade data. The company works with 40 million businesses and 300 million suppliers and lenders in the US alone. Experian business credit reports include a rating called Intelliscore Plus to create a business credit profile.
4.TransUnion
TransUnion is another business credit reporting agency. TransUnion compiles all transactions involving credit and also draws on public report data. The company merges the information and issues commercial credit reports, assigning a number that establishes a financial stability risk rating.
5. FICO SBSS Score
The FICO Small Business Scoring Service is the only agency that includes personal credit scores. That makes it possible for an investor or supplier to take a look at a business owner’s personal credit reports as well as the financial obligations and credit reports of the business. The FICO SBSS Score is a number from 1 to 300. The rating is required by the SBA for loan applications and is also required by many other lenders.
| Agency/Bureau | Key Features | Notable Ratings/Scores |
|---|---|---|
| Dun & Bradstreet | - Focus on vendor and supplier transactions - Comprehensive business data - Used by partners, lenders, businesses | Paydex Score |
| Equifax | - Compilation of small business lender reports - Information on liens, bankruptcies, judgments | Not explicitly mentioned |
| Experian | - Compiled from lenders and trade data - Operates with 40M businesses and 300M suppliers/lenders in the US | Intelliscore Plus |
| TransUnion | - Compiles all transactions involving credit - Uses public report data | Financial Stability Risk Rating (Not explicitly named) |
| FICO SBSS Score | - Includes personal credit scores - Offers insight into both business and business owner’s credit reports | Score ranges from 1 to 300 |
The Role of Business Credit Bureaus in Evaluating Creditworthiness
Business credit bureaus play a pivotal role in the financial world by evaluating the creditworthiness of businesses. They gather data from various sources, including lenders, suppliers, public records, and other creditors. This data forms the basis of a business credit report and score, which are essential tools used by lenders, investors, and other businesses to assess a company’s financial stability and reliability.
Key Functions of Business Credit Bureaus:
- Data Collection: Business credit bureaus collect a wide range of financial data, including payment history, credit utilization, and public records such as bankruptcies, liens, and judgments.
- Credit Scoring: Using the collected data, these bureaus calculate a business’s credit score, a numerical representation of its creditworthiness. This score is critical for lenders and suppliers in making informed decisions about extending credit or engaging in business transactions.
- Risk Assessment: Credit bureaus help in assessing the risk associated with lending to or doing business with a particular company. A higher credit score indicates lower risk, potentially leading to more favorable credit terms.
- Fraud Prevention: By maintaining comprehensive financial profiles of businesses, credit bureaus also aid in fraud detection and prevention, ensuring the financial integrity of business transactions.
The Importance of Regularly Monitoring Business Credit
Regular monitoring of a business’s credit report is crucial for maintaining a healthy financial profile. Business owners should check their credit reports at least once a year to ensure accuracy and identify any potential issues. This practice is vital for several reasons:
- Error Identification: Regular monitoring helps in identifying and correcting any errors or discrepancies in the credit report, which could adversely affect the business’s credit score.
- Fraud Detection: By keeping track of credit reports, businesses can quickly detect any fraudulent activities or unauthorized inquiries, safeguarding against identity theft and financial fraud.
- Financial Planning: Understanding the credit standing helps businesses in strategic financial planning, particularly when seeking loans, expanding operations, or entering new partnerships.
How Business Credit Affects Loan Approval and Terms
Business credit significantly impacts a company’s ability to secure loans and the terms of those loans. Lenders use business credit reports and scores to evaluate loan applications, determining the likelihood of timely repayments. A strong business credit score can lead to:
- Higher Loan Approval Rates: Businesses with good credit scores are more likely to get loan approvals.
- Favorable Loan Terms: A higher credit score often results in better loan terms, including lower interest rates, higher borrowing limits, and more favorable repayment schedules.
What is a Credit Report and Score?
A business credit report and score provide a snapshot of a company’s financial responsibility and reliability. They play a critical role in shaping the financial opportunities and relationships of a business. Let’s delve deeper into understanding what they are and their significance:
- Business Credit Report:
- Compilation of Financial Data: A business credit report accumulates various financial data points related to a business, including payment history, debt load, and public records like bankruptcies and liens.
- Detailed Record: It provides a detailed record of how a business handles its financial obligations, including loans, leases, and payment terms with suppliers.
- Viewer Access: Potential lenders, investors, vendors, and even customers might view a business credit report to gauge the financial health of a business.
- Business Credit Score:
- Numerical Representation: Based on the data in the business credit report, a business credit score is a numerical representation that predicts how likely a business is to pay its debts.
- Range of Scores: Typically, the score can range from poor (indicative of higher risk) to excellent. A score above 670 is generally considered good, signaling to lenders and other entities that the business is financially reliable.
- Factors Influencing the Score: The score is determined based on several factors, including payment history, credit utilization, length of credit history, and public records.
- Creditworthiness: This score is a quick reference point for potential creditors, lenders, and business partners to determine the creditworthiness of a business. A higher score can lead to better loan terms, lower interest rates, and more favorable payment terms with suppliers.
In essence, both the business credit report and score serve as vital tools for outside entities to evaluate the financial reliability of a business. Businesses should regularly monitor and manage these to ensure they have access to the best financial opportunities and terms.
How Long Does Information Affect a Business Credit Report?
Certain information affects business credit reports for a length of time, which affects business credit scores issued by credit bureaus:
- Judgments – 6 years and 9 months
- Bankruptcies – 9 years and 9 months
- Tax liens – 6 years and 9 months
- Trade data – 36 months
- Payment history – For the length of the loan
- Financial statements – For the past 3 years
| Information Type | Duration Affecting Credit Report |
|---|---|
| Judgments | 6 years and 9 months |
| Bankruptcies | 9 years and 9 months |
| Tax liens | 6 years and 9 months |
| Trade data | 36 months (3 years) |
| Payment history | For the length of the loan |
| Financial statements | For the past 3 years |
- READ MORE: How to Get a Small Business Loan
Why are Business Credit Reports Important?
Business credit reports play a crucial role in the financial health and reputation of a business. Compiled by business credit bureaus, these reports act as a reflection of a business’s financial responsibility and reliability. Here’s an expanded explanation of why business credit reports are indispensable:
- Reflection of Financial Health:
- Business credit reports provide a snapshot of a business’s financial stability and creditworthiness. A positive report can instill confidence in potential partners, lenders, and stakeholders about the financial health of a business.
- Determinant of Business Credit Score:
- Your small business credit report directly influences your business credit score. A good score or higher can significantly enhance your chances of obtaining loans or receiving extended credit for purchases. This can provide you with the flexibility to invest and grow your business.
- Tool for Error Identification and Rectification:
- Regularly reviewing your business credit reports allows you to spot and rectify any inaccuracies or discrepancies. These could be due to clerical errors, fraudulent activities, or other issues. Addressing them promptly can prevent potential harm to your credit score.
- Influence on Business Relationships:
- Other businesses, especially vendors and suppliers, often review your business credit reports before entering into any financial agreements or partnerships. A positive credit report can facilitate smoother business transactions and build trust among your business partners.
- Monitoring of Credit Inquiries:
- Business credit reports allow you to monitor who has inquired about your business’s credit. This can be beneficial in understanding which businesses are interested in forming a partnership or are keeping tabs on your financial health. It also helps in keeping a check on any unauthorized or suspicious inquiries.
In summary, business credit reports not only affect the ability of a company to secure loans and foster positive business relationships, but they also act as an essential tool in maintaining the financial security and integrity of a business. Regularly monitoring and managing these reports should be an integral part of a business’s financial strategy.
Best Practices for Improving Business Credit
Improving and maintaining a strong business credit score is essential for financial health and growth opportunities. Businesses can take several steps to enhance their credit standing:
- Timely Payments: Consistently paying creditors and suppliers on time is crucial for maintaining a positive credit history.
- Credit Utilization: Managing credit utilization effectively by not maxing out credit lines and maintaining a healthy balance between debt and available credit.
- Building Credit History: Establishing a diverse credit portfolio and a long history of responsible credit use can positively impact credit scores.
- Regular Monitoring: Regularly checking credit reports for inaccuracies and addressing any issues promptly.
Future Trends in Business Credit Reporting
The landscape of business credit reporting is continuously evolving, with emerging trends and technologies shaping the future. We can expect:
- Increased Use of AI and Machine Learning: These technologies will enhance the accuracy and efficiency of credit scoring and risk assessment.
- Greater Emphasis on Data Security: With the rise in cyber threats, credit bureaus will focus more on ensuring the security and privacy of financial data.
- Expansion of Data Sources: Credit bureaus may incorporate more diverse data sources, including alternative data like utility payments or rental history, to provide a more comprehensive view of a business’s creditworthiness.
Where Does Business Credit Information Come From?
A number of data points can be compiled into your business credit file:
- public records
- lenders
- vendors
- suppliers
- public utilities
- real estate taxing agencies
- state taxing agencies
- court records involving judgments
- court records involving bankruptcy filings
How to Access Your Business Credit Report
Accessing your business credit information is easy. You can get free business credit reports on your own business, once a year. But you’ll typically have to pay a fee to get more than one report on your own business a year or to get a report on another business.
Just go to Annual Credit Report.
Can you Run a Credit Report on a Business?
Yes, and it’s a common practice used by a company that is granting business credit accounts. Before giving credit to a supplier or vendor, a small business should assess any business risk by obtaining a company’s credit report. If a company doesn’t have a strong business credit rating of at least Good, a business owner may set a credit limit or choose not to do business with the company.
- Read More: How to Get a Business Loan with Bad Credit
Does an LLC Have Its Own Credit Score?
Yes. No matter which entity has been chosen for the business structure, it will have a credit score. A corporation, LLC, and other businesses have a credit score.
READ MORE:
- How to Get a Small Business Loan
- What is a Business Credit Score?
- How to Fix Your Credit Score
- How to Build Business Credit
- How to Get a Business Loan with Bad Credit
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