Small business owners all learn about the impact of credit on business financing when applying for business loans or lines of credit. We’ll explain below which factors affect your business credit report and how you can improve business creditworthiness.
What you need to know
- Business credit reports track your payment history and credit defaults,
and are referenced when assessing your business loan application
or payment terms. - Experian, Dun & Bradstreet, and Equifax are the three major credit bureaus, and their information about your business is used to calculate your business credit score.
- The best way to improve your business credit score is to repay loans when they’re due.
What is a business credit report?
You’ll need to register with the three major business credit bureaus—Experian, Dun & Bradstreet, and Equifax—to produce a full business credit report. These reports contain background information, payment history, credit history, and public records that give lenders a full view of your business’s financial health and creditworthiness.
Business credit reports come into play when applying for business financing. If you haven’t registered with the credit bureaus, do so now—it takes time to build business credit. Lenders or other businesses negotiating a lease can pull your credit report, too, and will do so when determining your terms. Those options will affect your cash flow, so regularly monitoring your credit report is important.
What’s included on a business credit report?
Business credit reports contain some of the same elements as personal credit reports, like payment history and credit history, but your business report also tracks your:
- Business registration
- Business credit score
- Payment history
- Credit cards and credit lines, and your repayment history
- Public records (including any liens, bankruptcies, and judgments)
- Business identification information (including size, years in business, and SIC code)
Each component of your credit report affects your company’s overall creditworthiness in the eyes of lenders. For instance, using a lot of business credit may indicate you’re overleveraged and shouldn’t take on additional debt.
How business credit scores are calculated
Your business credit score is calculated by algorithms that examine some of the items on your credit report, namely your:
- Credit cards and credit lines, and your repayment history
- Public records (including any liens, bankruptcies, and judgments)
- Business identification information (including size, years in business, and SIC code)
Why it’s important to monitor your business credit
Your business credit report can be the deciding factor in whether you’re approved for a loan or receive more favorable payment terms.
Business credit bureaus are not infallible, so monitor your credit reports to ensure that all their information is accurate. You can dispute errors in credit reports by contacting the credit reporting agency that issued the report. The credit bureaus and most business banks offer credit monitoring services for individuals and businesses.
How to access your business credit report
Like personal credit reports, you can receive one free business credit report per year. Reach out to each of the credit bureaus individually to order yours. Accessing a second copy of your report within one year and accessing the report for a different business are both not free, requiring a fee and/or contacting a representative from the bureau.
How to interpret your credit report
If you’re not a professional accountant or bookkeeper, hire or consult with one to look over your report with you.
Start reviewing your business credit report by confirming your identification—your company name, address, phone number, and employer identification number (EIN). If these are correct, check the “trade accounts” section of the report to see your outstanding balances, payment history, and credit use.
A strong business credit report indicates that you’re running a sustainable and low-risk business, while weaknesses in your report will need to be addressed to ensure long-term growth.
Improving your business credit score
The fastest and most sustainable way to improve your business credit score is to repay debts on-time, which includes making purchases on a business credit card or taking out a term loan or line of credit you can easily repay.
Good credit management can help secure better financing options. Develop solid long-term budgeting and cash flow management techniques to ensure you’ll always have the credit rating you need to grow and scale your business.
Explore your business credit and loan options with Bluevine.
