How to Read and Understand Your Business Credit Report

Business credit reports are essential indicators of your business’s financial health and a key tool for securing loans and managing operations.

When you become a business owner, you quickly realize that it isn’t just about your personal credit score anymore. A business credit report assesses the creditworthiness of your business, helping lenders, suppliers, and other stakeholders make informed decisions. Understanding how to read and interpret your business credit report is crucial for maintaining financial health and securing future funding.

Your business credit report directly affects your ability to secure loans, leases, and other financial agreements. Knowing how to read it ensures that you can address any inaccuracies and maintain a healthy credit profile.

What is a Business Credit Report?

A business credit report compiles detailed information about a company’s financial health and risk profile.

A business credit report assesses the creditworthiness of your business, similar to how personal credit reports evaluate your personal creditworthiness. It includes data such as payment history, credit inquiries, and public filings like bankruptcies or liens. The purpose is to provide a snapshot of your business's ability to meet financial obligations.

Major Reporting Agencies

There are three main business credit reporting agencies: Dun & Bradstreet (D&B), Experian, and Equifax. Each of these agencies compiles and analyzes data on millions of businesses to provide credit reports and scores.

• Dun & Bradstreet (D&B): Known for its D-U-N-S Number, D&B issues reports that include detailed business profiles and the Paydex Score, which measures promptness of bill payment.
• Experian: Provides business credit scores through its Intelliscore Plus system, which assesses credit risk based on payment performance, bankruptcy history, and other factors.
• Equifax: Offers the Business Credit Risk Score, which evaluates the likelihood of a business becoming severely delinquent or bankrupt within the next 12 months.

Comparison to Personal Credit Reports

While both business and personal credit reports aim to predict credit risk, they differ significantly. Personal credit reports focus on an individual's credit history, including credit card usage, loans, and mortgages. Business credit reports include information such as the company's financial statements, UCC filings, and trade payment histories. Moreover, business credit reports are accessible to the public, whereas personal credit reports are protected by stricter privacy laws.

Understanding what a business credit report is and the agencies that provide these reports is the first step in managing your business’s financial health.

Key Components of a Business Credit Report

A business credit report contains various elements that provide a comprehensive overview of your business’s financial health.

Company Information

This includes your business’s name, phone number, and address. Additional elements such as SIC (Standard Industrial Classification) or NAICS (North American Industry Classification System) codes are used to categorize your business industry. These codes help lenders and other stakeholders understand the sector your business operates in.

Business Structure and Industry Codes

Your business's legal structure, such as whether it is a sole proprietorship, partnership, LLC, or corporation, is also recorded. This information helps determine the level of personal liability involved and impacts the perception of your business’s stability.

Financial Performance and Payment History

Financial performance details such as annual sales, profit margins, and other financial indicators are critical. This section includes your payment history, showcasing how timely your business is at settling its debts. Companies like Dun & Bradstreet utilize payment history to calculate scores, such as the Paydex score, which indicates prompt payment.

Legal Issues and Liens

This section includes any filed lawsuits, judgments, or liens against your business. These elements can significantly affect your creditworthiness. For example, a lien indicates that a creditor has a legal right to a portion of your property or assets until a debt is repaid, which could be a red flag for potential lenders.

By understanding these key components, you can maintain accurate information and quickly identify and rectify any issues that may arise.

Understanding Your Business Credit Scores

Each business credit reporting agency calculates your business credit score based on different factors and algorithms.

Dun & Bradstreet PAYDEX Score

Dun & Bradstreet uses the PAYDEX score to evaluate your business's creditworthiness. This score ranges from 0 to 100, where a higher score represents better payment performance. For instance, a score of 80 indicates that your business pays its bills on time, while a score of 50 suggests payments are 30 days late.

Experian Credit Ranking Intelliscore

Experian's Intelliscore ranges from 0 to 100, with a higher score signifying lower risk. Factors influencing this score include payment history, frequency of delinquencies, length of credit history, credit utilization, and public records.

Equifax Business Credit Risk Score

Equifax calculates two primary scores: the Payment Index and the Business Credit Risk Score. The Payment Index measures how promptly a business pays its bills on a scale of 0 to 100. The Business Credit Risk Score ranges from 101 to 992, predicting the likelihood of severe delinquency or charge-off within the next 12 months.

How to Improve Your Business Credit Scores

Improving your business credit scores involves proactive financial management:

1. Timely Payments: Always pay your bills on or before the due date.
2. Credit Utilization: Keep your credit utilization ratio low, ideally below 30% of your available credit.
3. Build Credit History: Establish accounts with suppliers and creditors.
4. Monitor Regularly: Regular monitoring of your business credit reports helps identify and correct errors quickly.
5. Resolve Delinquencies: Address delinquencies immediately.

Understanding these scores and how they are calculated will help you better manage your business’s credit profile and make informed financial decisions.

Steps to Obtain and Review Your Business Credit Report

Regularly obtaining and reviewing your business credit report is crucial for maintaining accuracy and health.

How to Obtain a Business Credit Report from Each Agency

To get a comprehensive view, you should obtain reports from the major agencies:

1. Dun & Bradstreet: Visit the Dun & Bradstreet website and request a D-U-N-S Number (mandatory for obtaining their credit report). They offer packages, including Business Credit Advantage for ongoing monitoring.
2. Experian: Go to Experian’s website to order a report or enroll in their Business CreditScore Pro service, which provides continuous monitoring and alerts.
3. Equifax: Equifax provides a single report through its website or via the Business Credit Report Subscription Service, offering monthly updates and monitoring.

Cost of Business Credit Reports

Investing in business credit reports is essential. Here are approximate costs:

• Dun & Bradstreet: A one-time report costs around $61, and their Business Credit Advantage package costs about $149 annually.
• Experian: A single report costs approximately $39.95, while continuous monitoring services start at $179 per year.
• Equifax: Individual reports cost about $99.95, and subscription services begin at $199 per year.

Frequency of Review and Monitoring

It’s recommended to review credit reports at least quarterly. Regular reviews help monitor ongoing activities and identify discrepancies early. Benefits of frequent monitoring include:

• Error Detection: By reviewing reports regularly, you can catch inaccuracies or fraudulent activities.
• Credit Health Tracking: Ongoing monitoring allows you to track your credit health over time.
• Financing Opportunities: Regular review positions your business advantageously when seeking loans.

Regularly obtaining and reviewing your business credit reports ensures you can address any discrepancies and maintain a strong credit profile.

Correcting Errors on Your Business Credit Report

Even small errors on your business credit report can significantly impact your financial health.

Common Types of Errors

Common errors include:

• Incorrect Business Information: Errors in your business’s name, address, or contact details.
• Outdated Information: Financial data that wasn’t updated.
• Duplicate Accounts: Same account listed multiple times, skewing your ratios.
• Payment History Errors: Misrecorded late payments or defaults.

Steps to Dispute Inaccuracies

To address inaccuracies:

1. Gather Documentation: Collect relevant documents supporting your claim.
2. Submit a Dispute: File a dispute with the credit bureau reporting the error.
3. Follow Up: Regularly follow up on the status of your dispute.
4. Document Corrections: Keep a record of all resolved disputes.

Maintaining Updated Information

To maintain accuracy:

• Regular Reviews: Frequently review your report.
• Notify Changes: Inform credit bureaus of any changes in your business structure or contact details.
• Monitor Credit Activity: Use credit monitoring services for alerts on new activities.

By promptly addressing and correcting errors, you can ensure that your business credit report accurately reflects your financial standing.

Maintaining a Healthy Business Credit Profile

A strong business credit profile is essential for securing favorable financial terms and building trust.

By understanding and actively managing your business credit report, you can ensure the long-term financial health and success of your business. Consistent management and review of your business credit report are key to maintaining a robust credit profile, which is crucial for your business’s growth and stability.