A business credit report shows information about a business, its operations and financials. This is a guide to how business credit reporting agencies work.
Lending money to businesses is risky for banks, suppliers, and other creditors. For any lender, it’s all about discovering how to extend credit or a loan profitably while being able to distinguish the good credit risks from those who are unlikely to repay. Large lending institutions like banks, creditors and small businesses all have the same risks when they extend credit/loans to businesses.
Lenders work to minimize the risk of these loans or lines of credit by evaluating the credit history of the business via a business credit report. A business credit report can reveal a great deal of information about a business, its operations, financials, and many aspects of its borrowing activities. All of this information can play an integral role in a company’s ability to acquire financing. If a company has poor payment history, then the lender may deny the business a loan or may charge the company a higher interest rate.
A company’s credit history is compiled and maintained by companies called business credit reporting agencies. You may be familiar with consumer credit reporting agencies that collect credit history on individual consumers. However, business credit reporting agencies collect credit history on businesses from credit card companies, suppliers, banks, and other creditors to create in-depth business credit reports. The information in those reports is also used to calculate a company’s business credit rating.
A business credit report lists what types of credit a company uses, the length of time the accounts have been open, and whether the company has paid its bills on time. It tells lenders how much credit a company used and whether it is seeking new sources of credit. It gives lenders a broader view of a company’s credit history versus other data sources; such as a bank’s own customer data.
Business credit reporting agencies such as Dun & Bradstreet®, Paynet®, Experian® Business and Equifax® Small Business are powerful companies. One negative mark on a company’s report can cripple its borrowing power for years and may cause the business to receive less than favorable credit terms and interest rates. What’s also important to note is business credit reports are regularly requested by investors, insurance companies, and potential business partners. So it is essential for a business owner to understand how business credit reporting agencies work and to monitor their company reports regularly.
Every time a company applies for credit, the bank, credit card issuer, supplier or creditor initiates a credit inquiry to one or more business credit reporting agencies to review a company’s credit report and rating. They will decide whether or not to extend credit or a loan – and at what interest rate – mainly based on the credit history reported by those agencies.
Here are 12 ways a business credit reporting agency collects its information:
- Payment and banking data from suppliers and creditors
- Suits, liens, and judgments
- Uniform Commercial Codes (UCC Filings)
- Business registrations (state, city, county courts)
- Incorporation and bankruptcy filings from state and country courts
- Corporate financial reports
- Contracts, grants, loans, and debarments from the Federal government
- Internet web mining
- News and media stories and company press releases
- Yellow pages and other print directories
- Direct investigations and interviews with company principals (self-reported data)
- Other companies that have granted a company credit
Remember, business credit reporting agencies are storehouses of collected credit information on millions of businesses throughout the country and the world. It’s vital for business owners to review and ensure the information being reported about their businesses is accurate and up to date. Since business credit reports and ratings are constantly changing based on a variety of criteria, consider using a business credit monitoring service so you can keep a close eye on changes to your report. Doing so will enable you to be prepared by knowing what suppliers and creditors will see when they review your business credit report.