It is never too late to start working on improving your business credit score. A good business score will make your business eligible for financing from banks or alternate lending companies, this applies to all kinds of businesses. Funding is essential to businesses, you will eventually get to a point where you need to expand your reach, need more equipment or undertake bigger projects.
Lenders need to see how much funding you have borrowed in the past and how you paid the repayment. This will determine how credit worthy your business is.
The top three credit bureaus today are Dun and Bradstreet, Experian and Equifax.
Each of the credit bureaus mentioned above has different credit assessment processes.
We have highlighted the different ways through which the top three reporting credit bureaus assess a company’s eligibility for credit. The method used by these companies is quite different from what is applicable with the personal credit bureaus.
Dunn & Bradstreet
Used by lenders to check your credit when applying for Term Loans, invoice Financing, Equipment Financing, Business Line Of Credit, Business Cash Advance, SBA and Long Term Loans.
Dun & Bradstreet has been in the business of assessing business credit since 1941. Their assessments are based on the extent to which a business communicates with its vendors, this constitutes the trade data. The assessment of how a business pays vendors for services is also put under focus. This is graded according to a 100 point score referred to as D&B PAYDEX®. The results show how promptly bills are paid; the score attained here should be high to benefit the business.
Other business information like banking history, transaction history, and business information will be retrieved from the public records; however, the final score is dependent on the trade data.
Used by lenders to check your credit when applying for Business Credit Cards.
Equifax conducts its business by converting the data it receives from Small Business Finance Exchange (SBFE) into a comprehensive business report. The SBFE is in charge of all reports presented by the banks for awarded loans; this means an Equifax report shows the pattern that represents how the owner of a small business pay their business credit card payments, pay off small loans or credit lines.
Equifax also considers other information from the business data files but it makes its assessments basically from the extent of interaction between the small businesses and the conventional financing options.
We consider the Experian business credit report as one that fairly considers all aspects of small businesses past transactions for a credit assessment. The assessment process, in this case, retrieves bank information, trade data, and information from the public records. Experian understands that there are businesses which mainly get their funding from banks while rarely using trade credit options. On the other hand, some companies rely on the trade credit providers more than the banks for funding.
Useful tips to establish develop and improve your business credit
The right time to start improving your business credit is now. Considering the various parameters used by the credit bureaus to assess a small companies credit, there are many actions a business owner can take to meet up with these requirements. We have included some useful tips in the following part of this paper.
1. Have a good knowledge of your credit score: There are many advantages of understanding the status of your credit score. You will know what needs to be done to improve it. From the inception of your business, it is important that you establish a credit score; however, it is never too late to start even with old businesses. You can monitor your credit score regularly to know the trends and how it affects your funding plans in the future.
2. Use your credit accordingly: it might be detrimental to your business in the long run if you end up consistently using personal credit to meet business demands and vice versa. Your reporting company only considers the utilization of credit in the right way. This means, using personal credit for business purposes will have no impact on your business credit score.
You will be building your business credit score when you use the business credit for only the intended purposes which will be reported on your account increasing your credit score.
3. Consider opening an account for a Quill, GraingerHome Depot or Staples credit card: You can easily develop your business credit by discovering simple actions that add value to your business credit. Securing credit cards from organizations like Home Depot and Staples is a good idea. All the expenses from this company will be reported to the benefit of your business credit score. It is easy to get one of these credit cards, and we have confirmed that they report to the business credit bureaus whenever you use their credit cards.
4. Deal with only vendors and lenders who report to credit bureaus: before establishing a business relationship with vendors, ask for proof that they report to credit bureaus, these reports will improve your business credit score.
This applies to lenders as well. It is important that your repayments for loans should be reported to credit bureaus as this leaves a trail of payments that will boost your business credit profile.
5. Use and monitor your credit expenses: The D&B PAYDEX has a 100 point score that applies to all businesses. To meet this score, you should ensure that credit is used for the right purposes and payments are made when due. Regular repayments will ensure a continuity of the credit line a vendor has given to your business. This will increase the chances of securing better loans from banks or lending companies in future.
A business credit card is different from the personal credit card in different ways, the billing system is different and the rules guiding the use differ as well. It is important to study and understand the applicable rules to avoid late payment on your credit cards. Late payments can cost you extra fees and charges; it will also have a negative impact on your business credit score. This is why monitoring your credit card transactions and payment dates are important.
6. Always update your business credit score information: the reports presented to the credit bureaus will only help your business score if they are accurate and updated. There are processes that can be used to correct any error many in your reports. A proof might be required to confirm your queries but once the error is confirmed, the right changes will be made.
Guard your business credit score carefully because it is one of your valuable assets. Its usefulness will be fully realized at a time a good opportunity suddenly comes up in your business for which you will need more capital. Always ensure only the right business practices that promote your business credit score is used for all your transactions develop good relationships with your vendors, suppliers and loan providers.