What are Business Credit Bureaus?
Business credit bureaus collect, organize, and analyze data about companies to determine their creditworthiness. Major business credit reporting agencies, such as Equifax Small Business, Experian Business, and Dun & Bradstreet (D&B), collect and analyze financial data about businesses.
These organizations compile information such as payment history, credit accounts, and public records to generate business credit reports and scores. Other business credit bureaus also gather data that financial institutions and other businesses use to assess a company’s financial stability and credit risk.
Commercial credit bureaus are critical in evaluating a company’s financial health and history. By maintaining detailed credit reports, these bureaus help lenders and vendors assess whether a business is a suitable partner or borrower. Companies can purchase their own business credit reports directly from credit bureaus.
Business Credit Reports and Scores
A business credit report contains key information about a company’s credit history, including payment data, financial obligations, and trade credit activity. Commercial credit reports play a crucial role in assessing credit risk for vendors, lenders, and other stakeholders, as they contain critical information about a business’s payment history, financial stability, and public legal events. This data calculates business credit scores, which serve as indicators of a company’s credit risk.
The major business credit bureaus offer unique scoring models:
- Dun & Bradstreet PAYDEX Score: Focuses on payment trends.
- Equifax Business Credit Risk Score: Measures the likelihood of business failure.
- Experian Business Credit Score: Ranges from 300 to 850, with higher scores indicating lower risk.
These scores guide lenders, vendors, and other stakeholders in making informed decisions about extending credit or establishing partnerships.
Why are Business Credit Scores Important?
Business credit scores are essential for accessing financing and securing favorable terms. A strong business credit score enables companies to qualify for loans at competitive interest rates, which can significantly reduce borrowing costs and improve financial flexibility. Higher business credit scores indicate lower risk and better payment history.
It also allows businesses to establish trade credit with suppliers and vendors, fostering better relationships and streamlining operations. Moreover, a strong credit profile positions businesses to negotiate more favorable terms with lenders and vendors, such as extended payment timelines or reduced interest rates. Additionally, building strong business credit has many benefits, including lower premiums on insurance policies and negotiating better contract terms.
By maintaining a solid business credit profile, companies can build financial stability, create opportunities for growth, and mitigate risks associated with unforeseen financial challenges. This foundation is critical for securing funding and ensuring long-term business success.
What Information Do Business Credit Bureaus Collect?
Understanding how business credit information is collected is crucial for any business owner looking to build a strong credit profile. Information collected on business credit reports can affect interest rates and insurance premiums for a business.
Business credit bureaus gather data from a variety of sources to create comprehensive business credit reports. These reports include vital information such as payment history, credit scores, industry trends, and financial performance.
Business credit bureaus gather data from diverse sources, including:
- Public Records: Public records, such as bankruptcies, liens, judgments, and UCC filings, provide critical insights into a business’s financial obligations and legal standing. These records are collected from local, state, and federal government sources and can indicate potential financial risks or liabilities.
- Credit Applications: When businesses apply for loans, lines of credit, or vendor accounts, the information provided on these applications—such as company size, revenue, and industry—is used by credit bureaus to build a comprehensive credit profile.
- Payment History: Payment data is gathered from suppliers, creditors, and other businesses that report their transactions. This includes details about whether payments are made on time, overdue, or settled early. Timely payments positively influence a company’s payment index and overall credit score.
- Trade Credit and Vendor Relationships: Business credit bureaus track trade credit extended by suppliers and vendors. This includes the terms of the credit agreements, payment trends, and credit limits, which are critical for assessing financial stability.
- Company Financial Data: Financial statements, such as balance sheets and income statements, can be included in a credit file if voluntarily submitted by the business or obtained from public sources. This data helps evaluate the company’s financial health and ability to meet obligations.
- Industry and Market Data: Some credit bureaus incorporate industry benchmarks and market trends into their assessments, allowing businesses to be compared with peers in their sector.
This comprehensive information forms the foundation of a business credit file, which is used to generate credit scores and reports. Key factors like payment trends, credit utilization, and delinquency history significantly shape a company’s credit profile, providing an accurate depiction of its financial health and reliability.
Who Uses Business Credit Reports from the Commercial Credit Bureaus?
Business credit reports can help win contracts and prove a company’s creditworthiness. Various stakeholders utilize business credit reports:
- Lenders: To evaluate loan applications and determine creditworthiness.
- Vendors: To assess whether to extend trade credit.
- Potential Partners: To gauge the financial stability and viability of a business.
- Customers: To ensure the trustworthiness of a company before entering into contracts or long-term relationships.
These reports provide crucial insights into a company’s operations and financial health, guiding key business decisions.
What are the Three Major Business Credit Bureaus?
The three major credit bureaus are Experian Business, Equifax Business, and Dun & Bradstreet (D&B). Experian and Equifax both have consumer credit bureaus, while D&B is solely devoted to business credit.
Let’s explore how each of these business credit bureaus works.
Experian Business Credit Reports
Experian maintains a database of more than 27 million businesses, including their payment history and bankruptcy filings, providing one of the most comprehensive collections of business credit information. Experian requires a minimum amount of information to generate a business credit score, including at least one tradeline.
Experian’s reports include details on payment history, bankruptcy filings, tax liens, and leasing information. The reports also assess trade credit relationships and how businesses manage their financial obligations.
Using the Intelliscore Plus model, Experian assigns scores ranging from 300 to 850, where higher scores indicate lower credit risk. This model evaluates over 800 variables, including credit utilization, payment trends, and industry benchmarks, to generate a predictive risk score. Experian also provides additional tools, such as credit monitoring services, to help businesses stay informed about changes in their credit profile.
Equifax Business Credit Reports
Equifax collects extensive data to create a thorough profile of a business’s financial health. In addition to payment history, Equifax tracks company financial records, public filings, and trade credit activity. Its reports also include detailed insights into cash flow patterns and credit utilization. Equifax offers scores such as the Business Credit Risk Score, which measures the likelihood of severe delinquency within the next 12 months, and the Business Failure Risk Score, which predicts the probability of a business closure. Equifax’s business credit risk score ranges from 101 to 992. A lower business credit risk score from Equifax indicates a higher risk of delinquency or bankruptcy.
Equifax’s Business Identity Reports provide additional verification by confirming key business details, such as legal name, tax identification number, and company size. This ensures lenders and vendors can trust the identity and legitimacy of the business in question. These features make Equifax an essential resource for businesses aiming to establish credibility with financial institutions.
Dun & Bradstreet (D&B)
Dun & Bradstreet (D&B) is a leader in business credit reporting and focuses exclusively on commercial credit. Its database contains information on hundreds of millions of businesses worldwide. D&B gathers data from multiple sources, including trade references, public records, and interviews with business principals.
Key scores provided by D&B include:
- PAYDEX Score: Reflects a business’s payment performance with suppliers over the past 12 months. A score of 80 or above indicates a strong payment history.
- Financial Stress Score: Assesses the likelihood of financial distress, such as bankruptcy, within the next year.
- Delinquency Predictor Score: Predicts the probability of late payments and delinquencies.
Additionally, D&B’s reports feature the D-U-N-S Number, a unique nine-digit identifier for businesses widely used in global trade and government contracting. By offering a mix of predictive analytics and detailed credit insights, D&B helps businesses and their stakeholders evaluate financial risks effectively.
What Other Business Credit Bureaus Should I Know?
In addition to the major bureaus, other organizations collect business credit information:
- Ansonia: Specializes in transportation and logistics industries.
- Cortera: Offers insights into B2B payment behavior.
- Credit.net: Provides simple credit reports for small businesses.
- Creditsafe: Focuses on international business credit reporting.
- Global Credit Services: Tailored for large corporations.
- LexisNexis Accurint: Provides the Small Business Risk Score.
- National Association of Credit Management (NACM): Offers credit management tools.
- PayNet®: Provides credit data to lenders.
- Seafax: Specializes in the food industry.
- Tarnell: Focuses on plastic manufacturing.
These bureaus cater to specific industries and offer additional insights beyond those the major bureaus provide.
How Do I Build Good Business Credit?
Building good business credit requires a proactive and structured approach. It starts with establishing your business credit profile, maintaining responsible financial habits, and consistently monitoring your credit reports.
Here is a step-by-step guide to help you build and maintain strong business credit:
Step 1: Establishing Your Business Credit Profile
Register your business with the major credit bureaus to create a business credit profile. This foundational step allows you to establish credit accounts with vendors and lenders. Once you’ve opened your accounts, you’ll need to manage them well to benefit from your new accounts.
Establishing business credit may require separating personal and business finances to avoid impacting personal credit scores. Open a business bank account to separate your personal and business finances, which enhances your company’s credibility. Consider utilizing net-30 accounts from vendors that report payment history to business credit bureaus.
By making timely payments, you can build a positive payment history and strengthen your credit profile. This initial step also ensures you can monitor your credit reports and dispute any errors or inaccuracies.
Step 2: Maintaining Good Credit Practices
Maintaining good credit practices is essential for building strong business credit over time. Start by making timely payments on all credit obligations, as this is one of the most significant factors in determining your credit score.
Use net-30 accounts, business credit cards, and small business loans responsibly to demonstrate positive credit activity. Be mindful of your credit utilization ratio, ensuring you don’t overextend your financial obligations.
Net 30 accounts are a valuable tool for businesses looking to build and improve their credit scores. These accounts allow businesses to purchase goods or services and pay for them within 30 days, providing a flexible way to manage cash flow and establish a positive credit history.
Avoid pitfalls such as high debt levels, missed payments, or defaults, as these can significantly damage your credit standing. A history of delays or defaults can damage your ability to obtain credit or prove your credibility to other companies. You can establish a solid foundation for long-term financial success by managing credit responsibly.
Step 3: Monitoring Business Credit Reports
Regularly monitoring your business credit reports is critical to maintaining an accurate and up-to-date credit profile. Review your reports at least quarterly to ensure all information is correct and reflects your current financial situation.
Contact the respective credit bureau promptly to resolve disputes if you identify any inaccuracies or errors. Consistently making timely payments and maintaining positive credit activity will help you sustain a strong credit profile. Monitoring your reports also allows you to identify potential issues early and take corrective action before they impact your ability to secure financing.
Frequently Asked Questions
Here are the most common questions about the business credit bureaus.
How Do Business Credit Bureaus Differ from Consumer Credit Bureaus?
While consumer credit bureaus focus on personal credit history, business credit bureaus evaluate company financial data. Lenders may consider both personal credit scores and business credit profiles, particularly for startups or businesses without established credit histories.
Personal Credit Score Impact on Small Business Loans
While business credit scores are vital, it’s essential to note that commercial lenders will still look at the personal credit history of small business owners. This is especially true for younger companies or those without a robust business credit history. Maintaining good business and personal credit is crucial for securing the best financing options for your small business.
What are FICO Small Business Scores?
The FICO Small Business Scoring Service (FICO SBSS) is a credit score designed for small businesses. Used by the Small Business Administration (SBA) and other lenders, the FICO SBSS score evaluates creditworthiness and helps businesses qualify for loans at favorable rates. The SBA requires a minimum FICO SBSS score for its loan programs.
What are the Best Vendors for Building Business Credit?
Using net 30 accounts from vendors that report credit history develops a good business credit history when invoices are paid on time. Tier 1 business credit vendors report both positive and negative payment history to credit bureaus.
Several vendors offer net-30 accounts and report to business credit bureaus:
- Uline: Supplies shipping and business products. Uline reports business credit to Experian Commercial and Dun & Bradstreet.
- Grainger: Provides industrial supplies and equipment.
- Quill: Offers office supplies with net-30 terms. Quill reports business credit to Dun & Bradstreet.
- Summa Office Supplies: Offers customizable office supplies with net-30 accounts.
- Crown Office Supplies: Provides general office supplies and reports to major credit bureaus.
- Nav: Offers financial tools and guidance while reporting payment history to credit bureaus.
- Shirtsy: Specializes in custom apparel and offers net-30 accounts for businesses.
- Strategic Network Solutions: Provides IT-related products with credit-building opportunities.
- Creative Analytics: A marketing agency offering net-30 accounts to businesses building credit.
- Home Depot: Home Depot reports credit for its commercial accounts to Dun & Bradstreet, Equifax Business, and Experian Business.
These vendors help businesses establish trade credit and build a positive payment history.
How Can I Get My Business Credit Report?
Businesses do not have the same legal right to free copies of their business credit reports as consumers do. The three major business credit bureaus sell business credit reports to lenders, vendors, and business owners.
Unlike personal credit reports, these reports are not private and can be purchased by anyone. Business credit bureaus can sell credit reports to anyone willing to pay for them, including competitors. Small business owners should regularly obtain their reports to monitor their credit status.
How Often Should I Check My Business Credit Report?
Regularly reviewing your credit report—at least quarterly—ensures you can address inaccuracies and maintain a positive credit profile. Frequent monitoring helps identify potential issues before they impact financing opportunities.
How Can I Dispute Credit Report Errors with a Business Credit Bureau?
Errors on credit reports can negatively impact your business credit score. Dispute inaccuracies by contacting the credit bureau directly and providing evidence to support your claim. Prompt action can help rectify errors and protect your business credit profile.
How Do I Improve a Low Business Credit Score?
If your business credit score is lower than desired, there are actionable steps you can take to improve it over time. Start by ensuring your business credit file is accurate and up to date. Verify that all company information—such as your address, ownership details, and registration—is correct with the major credit bureaus.
Making consistent, on-time payments is one of the most effective ways to enhance your credit score. This includes paying invoices, loans, and credit accounts promptly. Additionally, consider supplying positive payment experiences to Dun & Bradstreet. This can include trade references from vendors or suppliers who report your payment activity.
Bad Credit Business Loans
For businesses facing challenges with low credit scores, bad credit business loans may serve as a temporary solution. These loans are designed for small business owners who may not qualify for traditional financing. While they come with higher interest rates and stricter terms, they can provide the necessary funding and an opportunity to rebuild your credit history if managed responsibly.
Pros and Cons of Bad Credit Business Loans:
Pros:
- Access to funding when traditional financing is unavailable.
- Opportunity to improve cash flow and manage business operations.
- Potential to rebuild credit with timely repayment.
Cons:
- Higher interest rates and fees compared to standard loans.
- Stricter repayment terms and limited borrowing amounts.
- Risk of default making credit worse.
Small businesses can gradually rebuild their credit profiles and regain financial stability by staying proactive and focusing on responsible credit management.
Understanding Business Credit Bureaus – Final Thoughts
Business credit bureaus play a crucial role in determining a company’s financial stability and creditworthiness. By understanding how these bureaus operate, small business owners can take proactive steps to establish and maintain strong business credit.
Regularly monitoring credit reports, building a solid credit history, and addressing inaccuracies are essential for financial health. A strong business credit profile opens doors to favorable financing, better vendor terms, and sustained growth.
Contact us if you have more questions about business credit bureaus or to apply for a small business loan. Our alternative financing experts can help you find the best funding options for your credit profile.
