Your Personal Guide to your Business Credit!
Without mincing words, just know that when you need a business loan, the lender will not lend you what you want without first ascertaining that you can be able to pay back. And not just payback, but that you will pay in the agreed manner, in time.
Business credit score is measured in a different way from personal credit score. Personal score starts at 350 (which means bad!) to 800 (which means excellent). It might be hard to reach 800, but the higher the better. You get the drift…
Business credit score is a different kettle of fish altogether. Generally, it is measured on a scale of 0 to 100. Like personal credit, the higher the better. If you can keep at 70 and above, well, that would be awesome.
Lenders will get this information not from you, but by looking at your business credit report. This report will show how well, how timely the business pays its debts.
Similar to your personal credit, business credit is a rating or a score that is supposed to convey the ability of the business to meet its debt obligations. Today where business-to-business contracts are undertaken every day, your suppliers and creditors will not only want to see your personal credit rating, but your business credit as well.
Your business credit is built on how you borrow and pay. Another consideration is whether you meet your financial obligations on time.
Business credit history determines loan success or failure
That is right. In the life of your business, you will need a loan to boost your capital or to pay for operating costs. Lenders seek to know the credit score of business that apply for a loan. Yours will be no exception.
Because creditors will require to see your business credit, the sooner you start building it the better. This means using credit cards for business. Do not worry. Other businesses do this and so should you.
But starting to build credit is only one of the things that you need to do to get business credit rating. There are other things.
The most important thing is to keep on top of both your personal and business credit reports. That way, you know what the credit bureaus are telling lenders when they (lenders) ask for your credit report.
You already know where to get your free personal credit report. There are three main credit reporting bureaus – Equifax, Experian and Transunion. The law mandates the credit agencies to avail everyone with a free credit report at least once a year. However, should you need a report any time of the year, you can access it for a fee.
But what about business credit? It is paramount that you keep a close eye on your business credit score rating. This is what is going to determine whether you get a small business loan or not when you need one.
Five reasons why you should be on top of your business credit report
Know your business credit score. The higher the better. If it is lower, perhaps you will need to work on it before you even go to apply for a loan to improve your chances of getting one.
Know whether your credit score has been calculated accurately. For example, is there a payment that you made on time but it has been listed as late? If you have the proof, you can dispute and have it corrected.
Increase your chances of getting a business loan to pay employees, boost your capital, pay suppliers and do many more things.
Increase your chances of getting a business loan on fair terms. When your business has good credit, you will get loans at fairer terms than a business that have poor credit. You see, creditworthiness is determined by credit rating.
Higher credit rating for your business means one thing – that the business is very responsible when handling finances and credit. Suppliers consider that one thing before giving you merchandise.
Checking your credit report can actually help you improve your business. For example, if you find that the score is too low, you will want to know why it has dipped. Therefore, you will embark on improving it. Believe me; this is better than having to find out from the lenders.
Know your credit history. While this point is almost the same as above, you should know that business with a short credit history may not get favorable terms with their loans. But don’t let that deter you from applying for a loan.
How do the credit agencies compile business credit reports?
This is the age of data and data mining. As soon as you have a registered business and you get credit, the credit agencies start collecting data about your finances, mostly about how you pay your debts.
When you start paying for your loan, the credit agencies start compiling a report on your payment history. It is from this that your credit score will be calculated. So whatever you do when you have a business, know that some agency somewhere is gathering data about the debt responsibility, or lack of the same thereof, of your business.
Because the credit agencies are always looking for data about how your business handles debts and repayments, you should be more vigorous than them. It is your business, so you should always be on top of things. Find out what the creditors say about your business.
Once you see your credit report, study it carefully. You are looking for any errors, discrepancies, payments that have not been reported and so on. It would be a mistake to get the credit report and not look at it.
What you are seeing is what the lenders and suppliers will be seeing. Although the creditworthiness of your business is not the only thing they consider, it plays a big role in determining whether you get the small business loan or not.
Keep personal and business credit separate
But I have got good personal credit! You will exclaim when you are denied the small business loan that you had applied for.
When you keep the small business credit separate from personal credit, lenders and suppliers are better able to monitor the creditworthiness of the business.
It can be confusing to try to decide whether a business is worth getting a loan if you have been using your personal credit cards for all payments.
By keeping your personal credit away from the business one, you are defining lines between you and the business. Thus, it can be easy for you as well as lenders and suppliers to dig up the business credit history, as well as your personal credit history when needed.
In business, you will most likely be getting supplies on credit. You will also need to apply for different types of loans from time to time. This means that the lenders and suppliers will be making many inquiries as to your small business creditworthiness.
Fancy that! Did you know that too many inquiries into your personal credit can hurt your credit score? Now you know! Keep the two separate.
Okay, how can I improve my small business credit score?
Nothing fancy, really! It is just like personal credit score.
- Pay your bills on or before time. Also, if you could get a few business cards and use them and pay their bills on time.
- Create tradelines with suppliers and ask them to report your payments to credit bureaus
- Make sure you get your reports from the main credit agencies – Experian, Equifax, Dun & Bradstreet. Again, know how each agency compiles its reports. Create complete business profiles with the three, and make updates anytime you make changes in the business. This could be things like increasing or reducing the number of employees.
- Only take inventory from suppliers that will make reports to credit bureaus. If they do not, then establishing tradelines with them does not help your credit history.
- Borrow money from lenders who will report to the credit bureaus anytime you make a payment.
- Clean up your personal financial record. For example, if you have ever declared bankruptcy, that history stays with you for at least 10 years. If you have ever had a lien (where the creditor is allowed to seize your property for payment), the smudge will stay on your report a long time.
- Keep all of your receipts in order. These are the proof that you paid. You may need them to settle a dispute with the credit bureaus.
Why it is paramount to keep a clean business credit history
- You can get loans easily
- You can get small business loans at very fair payment and interest terms
- Suppliers will trust you and give you inventory on credit
When you have bad business credit history
Does it mean that you cannot get a business loan if you have bad credit? You will, although it may be costlier, it is a loan all the same, and it helps. However, note that most of the lenders who are ready to lend to small business with bad credit will most likely not report your payments to the credit bureaus. What good does that make your business credit history then?
Important thing to note
Business credit is readily accessible. Interested parties do not require to get your permission to access your small business credit report.
10 Sources for your free business credit report
It looks like we have delved into the tidbits of small business credit. The only thing you do not know now, is where to get your free credit report for your small business.
Here are ten places for you:
- Dun & Bradstreet – CreditSignal
CreditSignal will send you alerts whenever a file of your business credit is purchased. You will also know how your business transactions have been affecting your credit.
If there are any changes, positive or negative to your credit score, you will get an alert. The best thing is that you can monitor whatever is happening through their mobile app. Sign up for a free account and stay signed in even when you are on the move.
You not only get business credit reports free of charge, but you also get resources that educate you about business credit. These include tips and articles.
But everything is not free. For a small fee, you will be able to get your credit score as at that time, and you can also see anyone looking at your credit report. You can choose the most favorable subscription package.
- Paynet – Business Loan Payment reporting
This agency was established back in 1999, and since then it has been giving small business easy access to free credit reports. It also makes business credit reports available to banks and other financial establishments when they require such.
Among some of the things that lenders will see in your report from PayNet include payment history, payment failures and trends, time you have been in business, the time you have been borrowing, borrowing patterns, history of serious payment failures, how much you borrowed and so on.
When you get your PayNet business credit report, you will see a detailed summary of all of your business’s debt obligations, how much money the business owes and how much it has paid. It will also show how frequently your business has made payments, any collateral put up against a loan and so on.
This is as comprehensive as it gets.
- Experian Business Credit
Experian business credit reports are rich in detail, showing the financial status of a business. These reports leave nothing out as they show all the credit information regarding business.
A small business can get the credit status and reports of a customer or even a supplier before they engage their services. If you run a B2C (business to customer) business, you may need to check their credit status and history before you start working with them. For example, if you are a landlord or an estate agent and you are letting out property, you will want to use this service to find the credit history of the potential tenant.
If you run a B2B (business-to-business) business, you will want to know the creditworthiness of the business you work with. For example, if you are a wholesaler, you want to check the status of a business before giving them inventory on credit.
Note that the services you will get at Experian Business Credit are not entirely free. You will only access free service in the trial period, which is offered for 30 days after you register with them.
After that, you will have to part with a fee starting at $9.99 per month for your own company report, daily updates and email, phone and live chat support. For other businesses’ daily updates, live chat/email and phone support, you will pay $19.99 per month.
- Equifax – Business Credit
From time to time, it is important that you see how lenders and suppliers see your business credit status. To do that, just create a free account with Equifax and you will see, free of charge, how others see your credit report. You will get your credit score free of charge.
In the Equifax report, you are likely to find different types of business credit scores, which show how much of a risk a business is.
The business failure risk score indicates how likely a business is to fail in 12 months. The lower the better. The failure score of a business comes in three parameters/measures. The first one places businesses between 1000 and 1880, or 100 and 1604.
The second one uses color codes of red, yellow or green. The third one uses a scale of 1 to 9 indicating the likelihood of a business to fail in 12 months. The lower the better.
Other things you can expect in the Equifax business report include annual sales, employees available, guarantors, credit information like leases for equipment, business credit cards, business and credit union loans.
Judgments, liens and bankruptcy information is made available to the public by Equifax, the number of days that your business takes to pay suppliers and even “days beyond terms,” that is, late payments and basically, how late a business gets in its payments will all be listed.
Equifax business credit reports could easily be the most comprehensive of all credit reports in the market. Of course, for all this information, you will pay a fee. The only thing that Equifax allows you to access free of charge is the personal and business credit scores.
- Lexis Nexis – business background and credit profile
As a business owner, the question that you should be asking yourself is; just what does Lexis Nexis know about you? Lenders, suppliers and other institutions go to this organization when they want a background report on people and businesses. Therefore, once you approach a lender, you can be sure that they will ask for your risk profile from Lexis Nexis.
Organizations pay Lexis Nexis to investigate the credit background of your business and once they compile this report, they will keep it for future sale. It will be sold to banks, insurance companies, credit unions and even suppliers who need the same information about your business.
If your business has ever been involved in any lawsuits, illegal dealings, has had liens, judgments and bankruptcy, all that information will be made available. Since its establishment in New York in 1977, this organization has been doing background checks on people and businesses.
People, as well as businesses, can pay for their own background reports to see what details others will see should they ask for this report.
- Cortera.com – business online credit reporting
Renowned for the Cortera Score, a tool that measures not only the current financial risk of a business but also its future health, there is no doubt that this has become one of the most sought after risk management tools in the market. Managers, suppliers, banks and other lenders use this tool to evaluate the financial health of a business.
Using advanced analytics tools, they are able to come with a comprehensive report about the creditworthiness of a business. Such reports will help you improve your credit score, choose which suppliers to work with and if you are in Business to business, you can assess the creditworthiness of your customers.
Cortera is not entirely free although they offer a demo account, you will have to pay for the reports. But the fee is worth it because this organization uses advanced data analysis tools that get more data than the traditional analytic tools miss. They say they will beat Dun & Bradstreet prices by 30% so you can always try them out.
As much as your business needs to ensure that its creditworthiness is in top condition, at the same time, you also need to ensure that the customers you sell to on credit and your suppliers are creditworthy. The right tool to check their creditworthiness online is credit.net.
From the usability to the quality of the information that you will get on credit.net, this resource is highly rated. It is regarded as a free tool because it has many freebies. For example, you will get a 7-day free trial in which you can get a free business credit report, 7 in total.
Some of the paid for packages include a one-time credit report access, monthly credit report subscription and yearly subscription. All of the packages come with a 7-day free trial period so you can decide whether the package you want is appropriate for you.
- Start Business Credit
Get your business credit report from Start Business Credit and see how the creditors see your business credit history. Start Business Credit is acclaimed for bringing users easy-to-understand credit reports for the business.
Many lenders ask for a Start Business Credit report before they can advance you a business loan. Thus, you should check your Start Business Credit business credit report often so that you take care of anything that needs to be rectified.
The Start Business Credit website is out as of now. Most of the information that you will learn about this data gathering/analytics and reporting organization are tidbits from different sources. However, that does not mean that a Start Business Credit business report is not important. It is still
In addition to getting your business credit report, you will also get information to help you improve your creditworthiness. Today, Start Business Credit, although smaller than the three main credit agencies, it is regarded as a full credit bureau.
It is not an entirely free service, but before you get to subscription, you will have accessed your business credit report for free. Creditsafe was established in Oslo with the objective of availing business credit for small companies on the internet. Today, it still offers the same service spread over many countries.
Customer service personnel offer credit check services on the phone and on the internet. However, with a growing subscription base, today, Creditsafe has unrolled many technology products that people can integrate with their business systems so that they stay on top of their business credit history all the time.
To enjoy their free service, get the free trial credit report for your business, or for any other entity that you would like to check out. After the expiry of the free trial, you can then decide whether to subscribe or not.
What NAV does is that it offers you credit card-free sign-up, meaning that you do not have to pay a thing. It will then bring you a summary of the business credit reports from Dun & Bradstreet and Experian, free of charge.
If you need to see much more than just the business credit summaries, you will have to pay a fee. However, you agree that little is better than nothing, no? In addition to these summaries, you will also access many tools to help you build and improve your business credit score. These tools include how to dispute errors in your credit report and articles for how to start building business credit.
NAV offers free and paid-for personal and business credit reports. If your business is young and you feel you can just use the summary from the two main credit bureaus – Experian and Dun & Bradstreet, you can go with the basic, free plan. In this plan, you will get one personal credit report from one credit bureau, summary of business credit report from two bureaus.
The term free business credit report means that there is a free trial, or a demonstration, or maybe the report is entirely free. However, the laws mandate the three main credit reporting bureaus to give a free personal credit report to everyone. However, this rule does not apply to small businesses. Therefore, it is best to take the “free” offers with a pinch of salt, knowing that eventually, it will lead to a paid-for subscription. But a little free is better than not free at all.
Once you’ve determined your business credit and you’re ready to apply, you should follow this business owner’s guide to a better loan, so you can save yourself headache when applying for a business funding.