Understanding Your Business Credit Report
We’ve all heard about personal credit and are incredibly familiar with our personal credit scores. After all, when applying for mortgages or personal loans of any kind, our credit history comes into play.
But many people — small business owners included — have never even heard the term business credit report.
There are countless benefits to understanding and checking your business credit report regularly, as it’s likely your business credit will be checked when you apply for a small business loan. Having a good business credit report can help you get better interest rates, work with new businesses more quickly and potentially secure more credit.
Don’t worry if you’ve never heard of a business credit report or aren’t sure how they work. We’ve broken down the ins and outs of business credit reports, so you can put your best foot forward as a small business owner.
What is a business credit report?
A business credit report details how a business handles its financial obligations, says Gerri Detweiler, education director at Nav, a company that provides business credit scores and partners with major business credit reporting agencies Dun & Bradstreet and Experian.
“It’s basically a report that’s designed to help lenders, vendors, insurance companies and other businesses evaluate the risk of doing business with that firm,” she told LendingTree.
Business credit reports include what type of credit and how much credit a company has, as well as how long the accounts have been open. According to Detweiler, these reports also include basic information about the business, such as revenues or public news, as well as payment history and information on liens, judgments, and bankruptcies.
These reports are generated by business credit reporting agencies, such as Dun & Bradstreet, Equifax, and Experian. But where does the information on these reports come from? From supplier payment data and corporate financial reports to business registrations and federal grants, the information comes from myriad places.
Where to get your business credit report
According to a survey from Manta, an online community for small business owners, 60 percent of respondents said they did not know where to find their business credit report. Luckily, finding one is easy.
You can search for it through one of the three major business credit reporting agencies that compile business credit information:
If you’re unsure whether or not your company already has a business credit report on file, you can search for one through each major agency. If you see your business listed in one of the databases, you can order a report.
The rates for reports vary, and they’re typically not free like personal credit reports are. Experian, for example, offers a business credit summary report and review for around $40. Dun & Bradstreet offers reports for around $60. You can, however, get a free business credit report at a handful of places, such as CreditSignal and Scorely.
Curious what one looks like? Experian offers a sample business credit report here.
Business credit reports vs. business credit scores
Like a personal credit score, a business credit score is a number that helps someone understand the risk of doing business with a particular company. FICO is the most commonly used credit score and ranges from 300 to 850. While personal credit scores are tracked through your social security number, business credit scores are tracked through your federal Employer Identification Number (EIN).
Lenders interpret your credit score and use it to influence the types of products they offer you and how much they charge you to use those products that matters. For example, if you have a low credit score, you may not get approved for certain types of loans, like a credit card or a mortgage — and if you are approved, you will likely get charged a higher interest rate.
Similar to a personal credit score, the major role business credit scores play is helping potential lenders identify how risky it would be to lend money to a business. For example, if a business owner is applying for insurance, the insurer may pull the business’s credit score to help them predict how likely the business is to file a claim.
If you’re a small business owner applying for a loan, you should always expect that potential lenders will check your business credit score.
Business credit scores range from 0 to 100, and businesses with a number above 75 are considered to have excellent credit.
The difference between business credit and personal credit
Although the overall purpose of both reports is similar — to assess whether or not a person or business should receive a loan — the reports differ in certain areas.
Detweiler notes is that business credit reports don’t go into the same amount of detail as personal credit reports. For example, where a personal credit score might say you have a credit card with CitiBank, a business credit report would simply save you have a credit card. And where a personal credit report might say you have a mortgage with Wells Fargo, a business credit report would simply say you have an equipment lease and not name the company it’s with.
According to Detweiler, a reason business credit reports lack detail, Detweiler says, is because not all lenders and vendors report information on a regular basis to all of the major business credit reporting agencies.
Another difference between the two reports? Business credit reports don’t tend to list a credit limit. Instead, they show the highest recent credit, Detweiler says, or how much you most recently had outstanding.
There is, however, one area where business credit reports do go into more detail than personal credit reports: payment history. Small business owners interested in improving their business credit score should pay close attention to the payment history side of their report, Detweiler says.
“The payment history is more heavily weighted with business credit than it is with personal [credit],” she said, adding that payment history can be the major predictor behind business credit scores. “Payment history is really important when it comes to business credit.”
Additionally, , anyone can view business credit reports. “They don’t have to have permissible purpose like you would with personal credit,” Detweiler said. “Anyone who wants to buy a business report on any business can do so.”
How to set up a business credit report file
If you haven’t already, the first thing you should do is establish your business as an LLC and obtain a federal tax identification number (EIN).
Next, you should search for your business through one of the major business credit reporting agencies. If you find your business and notice any inaccuracies, report them to the agency immediately.
In the event that your company does not have a business credit report with one of the major business credit reporting agencies, the Small Business Administration recommends having one of your vendors or lenders submit your payment history to one of the major agencies. By doing this, you can begin growing your company’s credit history.
The SBA notes that only about 10,000 of the 500,000 suppliers who extend credit in the U.S. report this information to business credit agencies. An alternative to asking a vendor to submit payment history is to apply for a D-U-N-S Number through Dun & Bradstreet, according to the SBA, which will register you with the credit reporting agency.
The importance of monitoring your small business credit report
Small businesses are 41 percent likelier to be approved for a business loan, says a survey of small business owners conducted by Nav, if they know their business credit score and what it indicates.
It’s wise to check your business credit scores regularly not only to make sure they’re in optimal shape, but also to make sure no errors have been made.
Detweiler recommends checking your business credit report often and monitoring it in a similar way you would your personal credit.
“It’s a good idea to stay on top of your business credit because business identity theft is an issue,” she said. “There are scammers who will steal the identity of a business and then use that to get credit, or try to put up some kind of fake website to gather customer information.”
Even if you’re not actively looking to secure a small business loan, it’s best to stay on top of your business credit score in the event that unforeseen circumstances require you to take out a loan.
“It’s just like personal credit — you don’t really think about it until you see it has a direct impact [on you],” Detweiler said.
Tips for improving your business credit
There are many ways you can improve your business credit as a small business owner:
- Form an LLC. For starters, consider incorporating an Limited Liability Company (LLC) if you don’t have one already) to make sure liability for your company’s financial dealings are separate from your personal liabilities. Creating an LLC will also reduce the potentially negative impact personal credit can have on business credit and vice versa. “Simply registering your entity with the state may get you on the radar with business credit agencies, and some business lenders will only offer financing to companies that are incorporated,” Detweiler adds.
- Get a landline. Experian recommends setting up a phone line solely dedicated to your business. Make sure it’s listed online, too.
- Get an EIN. One of the first steps you should take is obtaining a federal Employer Identification Number (EIN), which is required on federal tax filings. Having one will ensure you’re in compliance come tax season. “If you operate as a sole proprietor you can file your taxes under your Social Security number but once you create a legal structure you’ll need to get an EIN,” Detweiler says. “It can also be helpful if you want to open a business bank account, get a business license and to apply for certain types of small business financing.”
- Open bank accounts and credit cards in your business’s name. Much like you would establish personal credit by opening credit cards and bank accounts, you should open bank accounts and credit cards through your business.
- Pay your bills on time. In addition to opening credit cards in your business’ name, make sure you pay them as early as possible. Simply paying your bills on time can earn you a business credit score of 80 through Dun & Bradstreet. And, if you make all payments 30 days before they’re due, you can earn a perfect 100 score.
- Join all three business credit reporting agencies. It’s best to have a credit report on file with all three major reporting agencies: Experian, Dun & Bradstreet and Equifax. Detweiler says that while personal credit reports tend to be similar across agencies, this isn’t necessarily the case with business credit reports. “With business credit, it’s more likely you’ll see differences in both the information on your reports as well as in your credit scores,” she says. “It’s a good idea to both check and monitor your business credit reports with multiple agencies. You never know which report a lender, vendor or even a potential business partner will check.”
- Talk to your vendors. Because payment history is such a crucial part of business credit reports, you should talk with as many of your vendors as possible to make sure they’re reporting to the major agencies. Building up a strong payment history is the best way to build your business credit. “Your best bet is to do business with companies that report to commercial credit bureaus, then make sure you pay your bills on time,” Detweiler says.