Pennsylvania Association Of Credit Management
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Easy Tips
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Monday, 16 July 2018
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Credit Tips
Public records - information about your company found in city, state, county, and federal records, such as business licenses, property ownership, tax reporting status, and potentially negative information like tax liens, lawsuits, judgments, and previous bankruptcy actions. This information and more is collected by the credit bureau and processed through various formula-driven analyses to create a profile, which measures the financial condition of your business and its capacity to manage additional debt.
Business credit profiles are different than consumer credit scores in that different information is used to produce a unique evaluation of the business’ credit profile. How Does a Lender Get this Data, There are several credit reporting agencies that handle this data collection and analysis. You can check their websites for more information about what data is collected and how scores are determined. Each credit reporting agency has their own scoring method, including what information they collect, the algorithms used to weigh various data to create a “score,” and the numerical range they’ve established to report their information.
Unlike personal credit scores, which are all based on a set numerical range (500 is low, 800 is high), your business credit scores may use a scale of 1-100 for one bureau, and a different scale with another. NOTE: the information used by these credit bureaus is not guaranteed to be complete or correct. Your vendors aren’t required to send trade payment information to them, and it’s easy for errors to be made by similarly named companies or incomplete information.
The good news is that the credit bureaus want their data to be accurate and are willing to review and correct any errors on your credit report you identify. You can request a copy of your credit report and report any errors directly to the credit bureau. Business credit reports reflect transactions presumably completed using your business name, address, and your company’s federal Tax Identification Number (TIN).
As such, it’s very important to establish and maintain a business identity distinct and separate from your personal identity. Most lenders will consult your business credit profile (and for most small businesses, your personal credit score) before deciding whether to extend credit to your business. The lower your score, the “higher-risk” your business will appear in terms of repaying credit. Remember, lenders are looking for loans that will be profitable to them, so a bad profile or a lower personal credit score will likely mean that if you’re approved, you’ll pay a higher interest rate.
Your business credit profile may also impact your company’s access to other business relationships, like trade suppliers, insurance coverage, and leasing agreements. Knowing your business credit profile isn’t difficult, but sometimes the steps to insure it’s accurate and make corrections can be a long process. Start with these steps to find out what’s in your current report. If your business doesn’t have a credit report on file, you may need to verify information about your business with one of the major credit reporting agencies in the U.S.
Start regularly monitoring your report - the major credit reporting agencies provide reports for many companies. Note that your actual credit “profile” is a proprietary grade that is shared with lenders and suppliers that might issue trade credit. Make certain that your report is accurate. These reports may contain errors, such as another company’s identification or business account information, including negative experiences. You can and should do your best to correct them, although this may take time and effort.
If errors do exist, be sure to inform any financial institution where you have a loan application pending that there are errors. What can your business do to improve an existing credit profile, Organize as a legally registered company, not just a Schedule C reporting activity. Comply with all local requirements for a business license or any other registrations required.
Register the information above with the business credit agencies to get on their radar earlier. Pay all invoices, debt payments and taxes on time and settle all other business matters as agreed. Make sure the vendors you use report you credit history to the bureaus. If they don’t, your good credit with them won’t be reflected on your business credit report.
A strong business credit profile can make it a lot easier to obtain new credit funding. You can take control and improve your profile by diligent oversight of what’s included in your credit report, as well as responsible management of your business financial arrangements. Taking these actions will be worth it in the long run and increase your odds of finding a small business loan.
Reduce risk and make informed decisions quickly and efficiently as you acquire new customers with business credit reports. When evaluating business credit, your ability to make the right decisions is only as good as the data driving those decisions. Because past performance is highly indicative of future risk, business credit reports from Experian provide the detailed insight you need to make wise decisions as you acquire customers. These comprehensive reports reduce the need to gather information from multiple sources and help you quickly identify which businesses to work with and those to avoid. These reports vary in content, level of research required, as well as manner and speed in which they are delivered. Experian can work with you to determine what your current business credit report needs are - to provide you with the most relevant information.
Business and consumer credit reports are similar in their purpose: to provide prospective lenders with credit profiles for determining credit risk. However, they differ in the types of information they contain and how they are used. When you first apply for credit, the three major credit bureaus - Experian, TransUnion and Equifax - begin to compile a credit profile based on your credit activities.
The credit bureaus analyze the information to generate a credit score, which lenders use as a measure of your creditworthiness. Although your credit score may differ slightly among the three credit bureaus, they generally use standard methods and algorithms established by the Fair Isaac Corporation, which generates your FICO score. Consumers are entitled by law to receive one free credit report from each of the credit bureaus; however, the credit score is not included with the credit report and must be purchased separately.