How to Understand your Business Credit Report
Business credit scores tell suppliers and service companies whether they should expect you to pay in a timely manner. The credit score for your business may help you obtain better terms when you apply for credit, apply for an SBA loan, or obtain business insurance.
Information about financial transactions is collected by credit bureaus to form you’re the credit report for your business. Those issuing credit will likely rely on this credit report to decide if they will grant credit to your business and how much.
Review the Credit Reports for Your Businesses
The first step in understanding the credit report for your business is to obtain copies of your reports. Realize that these are special reports for your business and are not your personal credit reports. These credit bureaus will charge you for their report on your company.
Reading your credit reports is easy enough, and each of the bureaus will provide explanatory information. Obtain your reports, and then review them looking for errors and omissions.
What is your Business Credit Score?
Similar to your personal credit score, the credit score for your business is a numeric indication of creditworthiness. Only your business payment history is considered. Credit scores for businesses generally range from 0 to 100. You want a high score.
Why Does Your Business Need a Credit Score?
If you want to make purchases and obtain services on open account, your business needs to have scores from the credit reporting bureaus. Your vendors can be an important source of financing for your company.
A good business credit score should make getting financing easier. Your borrowing power should increase. The chances of obtaining a business loan should be improved. Insurance rates might be lower.
How are credit scores calculated for businesses?
Each of the credit bureaus calculates scores differently, but there are basics that you should know. Generally, three types of business information are collected:
- Credit information and payment history from your lenders and suppliers
- Public record information such as information from courts
- Company background information compiled from various sources
Your credit score is then calculated by an algorithm that is formulated to indicate risk based on several factors:
- Credit: Number of experiences, balances currently owed, payment habits, utilization of credit and trends over time
- Public Records: Existence of judgments, liens or bankruptcies
- Demographic Information: Standard Industrial Classification code (SIC code), years on file and business size
Monitor the Information That Credit Bureaus Maintain for Your Business
Understand what each credit bureau reports, and monitor your report. Sometimes data is incorrect, and when you see mistakes, contact the bureaus to provide evidence so the reports can be corrected. Do whatever is needed to keep your business credit report as favorable as possible.