What is a business credit report?

You may be familiar with FICO score for your consumer credit report. Well, a similar credit score exists for your business!

A business credit report is how the credit bureaus monitor information about the risk involved with your business, specifically around credit and lending. Simply put, your small business credit score indicates your company’s financial discipline and its ability to take on debt and funding.

How does it work?

Business credit reports are created when your suppliers, vendors, or lenders report a business’s accounts and transactions to a business credit bureau. The credit bureau processes the information to determine the various scores and risks associated with your business. Some bureaus also factor information from the principal business owner’s personal credit report and other external repositories.

Who manages a business credit report?

Similar to FICO, a business credit report is provided by a credit bureaus that are collecting information about your business and determining your score based on their proprietary algorithms and various ranking ranges—the higher the better. The most notable credit bureaus are:

What’s on my business credit report?

Business credit reports vary between the monitoring credit agents. A typical business credit report includes:

  • Business background information – addresses, key personal, related companies
  • Category – background information, NAICS code, incorporated, employees, etc.
  • Credit score – various ranges depending on the bureaus
  • Financial stability – likelihood of a severe financial distress in the next 12 months
  • Payment summary – showing how well the company is paying its bills on time
  • Credit summary – credit utilization and timely re-payments overtime
  • Inquiries – the type of vendors inquiring about the company’s score
  • Collections, judgements, liens, leasing, and filings – information about the debt and obligations of the company as well as records from public filings

What is affecting your business credit score?

It varies between the bureaus, but here are a number of items that are affecting your credit score:

  • Number of commercial accounts with terms other than NET 1-30 days
  • The length of time on the credit bureaus’s files
  • Number of accounts that are not current (if any)
  • Number of accounts with high credit utilization

What are the benefits of a good credit score?

There are numerous benefits of maintaining a good credit score. Most importantly, a good score is a necessity for obtaining funding from institutional and private lenders, as all lenders look at your business credit report before making and funding decisions. In addition to funding/lending, here are three other benefits:

  1. Lenders offer better interest rates to businesses with good credit scores.
  2. You may be able to obtain a business loan without the need for a personal guarantee.
  3. You can make better business decisions and allocate the capital you need.

Maintaining a good business credit score is essential for growing and running your business.

Do all businesses have a credit report?

Not all businesses have one. If you don’t have a credit report yet, it is likely your business is fairly new and did not get on the bureaus listing yet. To get started, visit the websites of the 3 major credit bureaus (linked above) and search for your business listing. If it’s not there, contact the bureaus and ask to list your business. Better yet, contact them as soon as you incorporate your business. It can take a bit of time to get listed.

For more tips on small business finance, check out the rest of our blog.