Complete Guide to Business Credit Reports

Just like a consumer with a mortgage or a wallet full of plastic, companies that borrow money have their own credit history. And that history matters. A company's track record with credit—spelled out in detail on a credit report— can have a huge impact on its ability to borrow more money. Just as important, a company's credit history sends a strong message to potential partners and suppliers. A good credit report suggests that a company will likely meet its obligations and pay its debts in a timely manner—the type of company that others want to do business with.

The three major credit-reporting bureaus — Dun & Bradstreet, Experian, and Equifax — collect information about how promptly your company pays its bills, plus lots of other financial data, and compiles it all in a credit report. Banks and other lenders check your business credit report before offering credit to your company, so it's essential to understand what your report says and make sure it's correct. Each bureau organizes its credit reports differently, but they all focus on the same types of information. Here's what to look for:

• Credit score
  This numerical rating gives a quick snapshot of the creditworthiness of your company. Each bureau has its own proprietary formula for calculating this score.

• Company information
  The report lists basic information on your company, such as its name, address and phone number. The type of business (corporation, LLC, etc.), parent company and subsidiaries may also be included.

• SIC or NAICS industry code
  A company in a high-risk industry, such as a restaurant or real estate firm, may be less likely to get credit on favorable terms than one in a low-risk industry.

• Company age
  The longer a company has been in existence, the more stable it is perceived to be.

• Payment history
  This shows how many of your company's payments are made on time or late - and how late. Payment trends over time can indicate whether your company is growing and prospering or heading toward trouble.

• UCC filings
  Any loan secured by collateral must be reported under the Uniform Commercial Code, preventing the same collateral from being used for another loan. Any liens against your company's property or assets will be listed. Some lenders neglect to update the UCC filing after a loan is paid off, so make sure this section is up to date. Otherwise, your business could look more financially overextended than it really is.

• Legal issues
  Any lawsuits or court judgments against your company will be noted.

• Collections
  Has another company initiated collections proceedings against yours? It could make your company look unreliable to potential lenders or business partners. If your business has become more solvent since going to collections, be sure to make all payments on time to repair your credit history.

• Bankruptcy
  If you've had a bankruptcy in the last three years, it will be difficult for your business to obtain financing. One tactic for rebuilding your business's credit history is to get a retail credit card from a national chain, such as OfficeMax, and pay it promptly.

Just about everyone knows their personal credit score and what it means. Your business credit score is a bit more complicated. While the personal credit rating agencies use the same scale (300 to 850, with anything higher than 700 being a great credit score), each of the business credit bureaus has its own scale. These are based on different types of information and calculated according to each bureau's own proprietary algorithm. Here's a quick breakdown:

This shows whether your company has paid its bills on time over the past 24 months. A higher score indicates a better track record of payment and a lower risk to creditors.

This "blended" score incorporates data from your business and personal credit histories to evaluate the chances that your company will become delinquent in the next 12 months. The Experian score reflects information from public records, collection agencies, legal filings, your company's payment history and how it compares to others in the industry. Higher scores indicate a better outlook:

Equifax takes into account your company's payment history, public records, and business demographics, as well as the small business owner's personal credit, in order to arrive at three separate scores:

• Payment Index (0 to 100)
  Reflects your company's payment history to previous creditors. A score of 90 or higher indicates that your company has generally paid its bills on time.

• Credit Risk Score (101 to 992)
  Indicates the likelihood that your company will become delinquent in the next 12 months, with a higher score meaning a lower risk to creditors.

• Business Failure Score (1,000 to 1,880)
  Evaluates the risk that your company will go out of business in the next 12 months, with higher scores indicating lower risk.

Business credit bureaus calculate a score based on your history of repaying your debts. There are a number of perks that come with a high score:

• more favorable financing terms
• better lease arrangements
• the possibility of bigger loans or credit limits to fund your business's growth

A good score also boosts your company's image and credibility in the business community. In business, few things are more valuable than your reputation.

A business credit report helps potential partners determine the financial risk of doing business with your company. Among other things, it addresses the big questions:"Can your business pay its bills on time? Can it pay off its debt? Can it pay suppliers by the agreed-upon deadlines? Are there looming regulatory or legal threats to your business's operation?" Since more than 85 U.S. companies filed for commercial bankruptcy each business day in 2018, small wonder that lenders and potential partners look to your business credit report for assurance that you can stay afloat. Do your due diligence and pull the credit reports.

How are business credit and credit scores different from personal credit and credit scores (such as a personal credit card and credit report)? Let's take a look.

≫ More: Business vs. Personal Credit Cards: What’s the Difference?

The three major business credit bureaus are Dun & Bradstreet (D&B), Experian and Equifax.

According to a Wall Street Journal study, just one-third of small business owners checked their business credit report during their previous two years of operation. Of the firm owners who checked their reports, nearly one quarter said they found errors or missing data that put their business in a riskier (and more expensive) category.

This underscores the importance of an accurate business credit report. You can contact a reporting agency to fix errors—each credit bureau has its own process for doing so.. (This information can be found online on a reporting agency's website.)

Be prepared to send any supporting documentation that validates your claims. For a fee, you can also subscribe to monitoring services that alert you to changes in your business credit report.

When it comes to business credit reporting, any information submitted from outside parties is voluntary. That means if a vendor does not report your (good) transactions to the credit bureaus, you don't get the benefit of a potentially higher score.

For this reason, look for lenders and suppliers that will report your timely payments. Some don't, so choose vendors who routinely send such information to credit bureaus. Being able to take credit for your responsibility will help to build your business credit profile and increase your credit score. Equifax's payment index and D&B's PAYDEX score rely on on-time payments.

Checking another company's credit report lets you know whether doing business together is a good risk. If your supplier pays its own suppliers late, that could mean a delay for your shipment. But if you were to check its credit report before committing, you could spot that late payment history, then look for another vendor that's more reliable. The same goes for companies you sell to — you want to be sure they'll pay on time and stay in business so you can keep selling to them.

Knowing your clients' credit history is critical if you manage cash flow with accounts receivable financing. Since your clients' invoices are collateral for a loan to your business, the lender will check your clients' credit histories to determine your interest rate. By checking your client's credit histories first, you can keep bad apples out of the ledger of invoices you're borrowing against — and keep interest payments affordable.

D&B, Experian and Equifax make it easy to check another company's credit report. It's as simple as going to the bureaus' websites and paying the fees. Options include a single report on a single company, a batch of reports on multiple companies and long-term monitoring of targeted companies.

You can check your own company's credit report the same way, or sign up for a monitoring service that alerts you when your credit score changes or is checked by someone else.

Just as you can look up another company's credit report, any other company — whether it's a bank, insurer, vendor or potential client — can check yours. They will want to know whether your company is solvent, stable and reliable before doing business with you. This means that the information in your credit report, whether good or bad, can have a major impact on financing and many other aspects of your business. Here's how:

Personal credit reports are easy to access for free: not so business credit reports. Typically, businesses pay for access to their credit report.

A free business credit report may be accessible, however, under these circumstances:

• You apply for business credit from a lender
• The lender contacts a business credit bureau and finds your credit rating insufficient
• You receive notification that your credit application has been denied by the lender
• You reach out to the specific credit bureau whom the lender contacted to determine your eligibility for credit and request access to your credit report.
• The credit bureau in question provides a one-time, free credit report for your business.

Of course, it's best to have regular access to your credit report. For that, you'll need to pay — and with business credit reports, you get what you pay for. For example, D&B offers reports for $12.99 each, but these don't come with a credit or PAYDEX score. Here's a breakdown of the cost of a report (with your business credit score), per credit bureau:

• Equifax
  $99.95

• D&B
  $61.99

• Experian
  $39.95

Having to pay for regular credit reports is not fun. But here's the silver lining: D&B offers free credit monitoring at CreditSignal, so that when your score changes for the better (or the worse) you will receive notification and can:

1. anticipate a lender's reaction to a request for more credit
2. choose when to request a copy of your credit report based on real data.

To do a credit check on your business, follow these steps.

This depends on your business needs. When you take out a business loan, you receive a one-time lump sum of money for a specific purpose. You'll pay this off on a monthly basis while accruing interest, much like you do with a car or a house. A business credit card, on the other hand, can be used now or into the future. Like a personal credit card, you can use it for a variety of purposes; it can be paid down and billed back up again as needed. You can also take out a business line of credit, which you can also use and pay off as needed. (And in case you were wondering, business debt doesn't reflect on your personal credit score.)

Michael Aning, Branch Manager of Mosaic Mortgage in California, is a small business owner and mortgage broker who also deals with commercial leases and loans. For very small businesses, such as sole proprietorships, he suggests a business owner either use a business credit card or take out a personal line of credit.

"[A] credit card is easier to use point-of-sale [than a loan] if you're going to buy something, but your debit card tied to your checking account could do the same thing. The only difference is convenience," says Aning. He suggests that unless you need a chunk of change up front, you're better off getting a line of credit or using a credit card instead of a loan: That way you pay less interest over time. However, if you do need significant funds up front, then a loan is the way to go.

Pam Ogden is the president and founder of Business Credit Reports, which is licensed by Dun & Bradstreet, Experian, and Equifax to provide business credit reports that combine information from all three bureaus.

• Dun & Bradstreet
  D&B is one of the three major business credit-reporting bureaus. Visit its website to check your own credit report, look up other companies and read expert advice for business owners.

• Experian
  Business and consumer credit bureau. Use the website to check your own credit report and find resources for your business.

• Equifax
  Business and consumer credit bureau. Visit the website to check your own credit report, look up other companies and read expert advice for business owners.

• Business Credit Facts
  Hosted by Experian, this website offers expert advice for business owners about credit, financing, taxes and other matters.

• U.S. Small Business Administration
  This site offers resources for small business owners, including information on how to build and manage business credit.

• National Association of Credit Management
  NACM is a trade association for business credit and financial management professionals.

• Nav
  Formerly Creditera, Nav offers credit-monitoring services to business owners.

• Business Credit Reports
  Licensed by Dun & Bradstreet, Equifax and Experian provide business credit reports that incorporate information from all three bureaus.