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Business credit reports: What are they, how do you get one?

Business credit reports: What are they, how do you get one?

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This article was last updated Mar 27, 2019. Terms and conditions may have changed. For the most accurate information, please consult the issuer website.

If you’re a small business owner, chances are you’ll need to borrow money at some point for your business to grow.  A lender will have to determine whether your business is worth the risk. Business credit reports help lenders make that choice.

What is a business credit report?

Just as your personal credit report tracks the way you use credit and your bill payment history, a business credit report shows potential lenders if your business conducts responsible fiscal activity. For example, it shows if your business pay its bills on time, if it carries a lot of debt or even if it has filed for bankruptcy. With that type of information, a lender is better able to make a decision about whether it is wise to lend your business money, and under what terms.

While the strength of a business’s credit report can open the door to loans and other financial opportunities, many small business owners don’t even know their business credit is being monitored. In fact, a study by Capital One found that 31% of small business owners have either never heard of business credit reports or they know very little about them.

What information is listed on a business credit report?

The type of information found on a business credit report includes payment histories, bank and credit accounts, tax liens, unpaid lawsuits and collections. Several companies offer business credit reports. Among them are Dun & Bradstreet, Experian Business, Equifax Business and LexisNexis Risk Solutions.

Credit reporting agencies use a business’s tax ID number for identification. They also use previous addresses and former names if a business has changed names. Information reported on a business credit report comes from a variety of sources including banks, lenders, business suppliers, government agencies and investors.

Who has access to your credit report?

It’s easier for someone to access your business credit report than it is for them to access your personal credit report. The Fair Credit Reporting Act requires that you give permission for someone to access your personal credit report. However, there are no laws restricting who can access your business credit report. In fact, some businesses may purchase a copy of your business’s credit report to determine whether they want to do business with you. For example, a supplier might pull your business’s credit report before extending you a line of credit.

Entrepreneurs should be thinking about building business credit from the first day they start their business, says Brian Bond, vice president of marketing and small business at Experian Business.

What to do to create a business credit profile

To begin building a credit file, you’ll need a tax identification number for businesses called an Employer Identification Number (EIN), which you get for free from the Internal Revenue Service. Then, obtain a Data Universal Numbering System (DUNS) number (also free), which is a unique identification number developed by data and analytics company Dun & Bradstreet. Other steps that can help you establish your company as a separate business entity — and build a credit profile — include opening a business bank account, installing a dedicated business phone line and changing the business structure of your business to a corporation or LLC. If you purchase goods from vendors, ask them if they report payment history to one or more credit agencies.

Steps to create (and keep) a solid business credit profile

Once you create a business credit profile, you’ll want to keep it in pristine shape. Here are the things you need to do to build and maintain a strong business credit profile.

  • Apply for a business credit card. You may have to sign a personal guarantee, meaning you’ll be personally responsible for any debts if the business doesn’t pay the bill, Bond says, “but that will help start building your business credit if you’re keeping the balances in check  and paying them on time.”
  • Be conscious about credit utilization, which is the amount you owe relative to the amount of credit you have available. Just as you don’t want to borrow up to your credit limits with your personal credit cards, you don’t want to borrow up to your credit limits with your business credit cards, Bond says.
  • Pay your bills to creditors, lenders and suppliers on time, as these payments are often reported to business credit bureaus, Bond says.

While those habits will likely have a positive effect on your business credit, there are actions that can harm it. Late payments, bankruptcies and tax liens can all do damage to your business credit file.

Read The Best Small Business Credit Cards for 2019

Build and track your business credit score

Some reporting agencies, such as Experian Business, Dun & Bradstreet and Equifax Business,  use information from your credit report to produce a business credit score. The score is determined by such factors as the total number of credit accounts the business has, the length of time the accounts have been open, the percentage of new commercial accounts the business has opened and payment history, Bond says. While personal credit scores range from 300 to 850, the general range for business credit scores is from 0 to 100

Small business owners should be monitoring and keeping track of their small business credit report and their score, and watching how they evolve over time, Bond says. But doing so can be costly. You can access your reports via the websites of the various companies that offer them, typically for a fee. For example, Experian charges between $39.95 and $179 depending upon whether you want a single report or an annual subscription so you can monitor your credit score.  Likewise, Equifax business credit reports range from $99.99 to $399.95.

However, earlier this year, Capital One launched Business CreditWise™, a service that gives you free, unlimited access to your LexisNexis Risk Solutions business credit report. You don’t have to be a Capital One customer to access the service.

Bottom line

When building a business credit score, don’t neglect your personal credit profile because if your business doesn’t yet have a strong business credit history, some lenders will look to the business owner’s personal credit score, Bond says. But “over time, the goal should be for any small business owner to become less and less reliant on their personal score because they’re building business credit.”

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