Your business credit report plays a crucial role in securing a business loan, negotiating payment terms with new vendors, and obtaining various forms of business credit. The primary providers of business credit reports are:
Dun & Bradstreet (D&B)
Experian
Equifax
They are commonly known as the “big three” business credit bureaus.
Each credit bureau is unique, and each analyzes its data differently, affecting score calculations and in turn your ability to borrow money.
Below you will find essential information about business credit bureaus, the data they compile, and their impact on you and your business.
Understanding the Three Major Business Credit Bureaus
When you’re trying to get a business loan, establish payment terms with a new vendor, or get any type of business credit, your business credit report can be a major factor in your success.
1) Dun & Bradstreet (D&B)
Among the prominent credit bureaus, Dun & Bradstreet (D&B) stands out as the sole entity dedicated exclusively to business credit. D&B’s primary emphasis lies in documenting a business’s interactions with vendors and suppliers, which is why prospective suppliers commonly refer to D&B reports before extending trade credit to your business. In addition to supplier-submitted business-to-business data, D&B incorporates public records, industry-specific information, and historical data from your D&B profile to formulate their credit scores, with the PAYDEX Score being the most renowned among them.
Other D&B business credit scores include:
Supplier Evaluation Risk Rating: This rating predicts the likelihood that a business might stop delivering its goods and services over the next 12 months.
Delinquency Predictor Score: This score measures whether or not a business is likely to pay its bills late or go bankrupt over the next 12 months.
D&B Rating: This rating relies upon company financial statements and other public information to develop an overall rating for a business’s creditworthiness. Making sure that your D&B profile includes accurate, up-to-date financial statements can greatly improve your D&B rating.
Credit Limit Recommendation: Banks and creditors may look at this recommendation, which is based on a business’s size, industry, and payment history.
Failure Score: This score is designed to predict the possibility that a company will seek legal relief from creditors or go out of business and leave creditors unpaid in the next 12 months.
The PAYDEX Score
The PAYDEX score, which is graded on a 100-point scale, serves as a measure of your promptness in fulfilling financial obligations to vendors and suppliers who report to Dun & Bradstreet (D&B). It signifies the reliability of your bill payments within this context. If you maintain a positive payment record with suppliers who do not report to D&B, their data will not be factored into the calculation of your PAYDEX score. Given the significance of the PAYDEX score, it is advisable to proactively encourage current
2) Equifax
Equifax takes all the information collected by the Small Business Finance Exchange (SBFE) and turns it into a report. The SBFE is a group of small business lenders in the United States who share payment data about their small business customers.
This data is crucial because it shows how small businesses work with lenders, and banks use it to decide if a business is creditworthy.
Just like the other business credit bureaus, Equifax also looks at trade credit information and data from public records. Public records can include things like liens, bankruptcies, or judgments against a business. Equifax puts all of this information together to create a company’s credit report. Equifax credit reports include:
Payment Trend and Payment Index: This shows the business’s payment trends over the past 12 months and how it compares to industry norms.
Equifax Business Credit Risk Score: This predicts the likelihood of a business incurring a 90 days severe delinquency or charge-off over the next 12 months. The score ranges from 101 to 992; lower scores indicate higher risk.
Equifax Business Failure Score: This predicts the likelihood of a business failing through either formal or informal bankruptcy over the next 12 months. It ranges from 1000 to 1610; lower scores indicate higher risk.
3) Experian
Experian collects credit information from suppliers and lenders. They also look at the information available in the public record, including legal filings from local, county, and state governments, as well as information from credit card companies, collection agencies, corporate financial information, and other databases.
Experian looks at the number of credit transactions, outstanding balances; payment habits; how much of your available credit you use; and the details of any current liens, judgments, or bankruptcies. Time in business, the size of your business, and your business’ Standard Industry Classification (SIC) codes are also part of your Experian Business Credit Score. This score ranges from 0 to 100 and breaks down as follows:
0-15: High Risk
16-30: Medium Risk
31-80: Good Credit
80-100: Excellent Credit
Experian also generates a Financial Stability Risk Rating that measures the risk of a company’s going into bankruptcy or severe financial distress in the next 12 months. This rating ranges from 1 to 5, with lower ratings indicating lower risk.
Because Experian collects both trade data and bank data, their business credit report could be considered the most balanced of the big three. Whether your business relies mostly on trade credit for capital, accesses capital from a bank, or does both, Experian will have the necessary data to provide insights into your business
Remember to take care of both our personal and business credit scores, and always strive to keep them strong!
Business Credit Reports
Your business credit report is only as accurate as the data the credit bureaus have to work with. It is a best practice to review your business credit report annually with all three major business credit bureaus. An unchecked error allowed to accumulate over time can severely impact your business.
For example, incorrect information in your D&B profile, such as the wrong SIC code, could negatively affect your business credit score and make it harder to obtain vendor credit.
While personal credit reports can be obtained for free, the same does not apply to business credit reports. Nonetheless, it is worthwhile to pay the fee in order to access the information within your business credit report. Additionally, the business credit bureaus provide services for monitoring your business credit, which notify you of any changes in your credit report and score.
Since each credit reporting agency wants to maintain accurate data, D&B, Equifax, and Experian all have dispute resolution processes you can use to request corrections or updates to your business information. Only the business owner or a registered corporate officer can make these requests.
You want correct and up-to-date information ahead of time if you’re considering a real estate property.
The Business Bottom Line
As a small business owner, not only is your personal credit score important, but your business credit score is just as vital. It’s important to understand what kind of information the business credit bureaus collect and make sure that information is accurate. By doing so, you can maintain a strong business credit profile, and ensure a more healthy financial future for your business.
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This Month’s Quote:
“To become an entrepreneur, you must be determined and ambitious. Motivation is a social or psychological call to action or an innate drive for success – success requires motivation.”
“The critical ingredient is getting off your butt and doing something. It’s as simple as that. A lot of people have ideas, but there are few who decide to do something about them now. Not tomorrow. Not next week. But today. The true entrepreneur is a doer, not a dreamer.”
— Nolan Bushnell, founder of Atari and Chuck-E-Cheese’s
Editor’s note: Nothing in this blog post should be construed as legal advice of any kind. Any legal, financial, or tax-related content is provided for informational purposes only and is not a substitute for obtaining advice from a qualified legal or accounting professional.