Business Credit Report: What Is It & How to Check Your Business Credit Score

Introduction

Do you know what determines whether a business can secure funding or establish reliable partnerships? It’s not just about having a great product or service – it’s about something less tangible but equally critical: your business credit report. 

Just as individuals have personal credit scores, businesses also have their own credit profiles that lenders, suppliers, and other stakeholders use to evaluate their financial health and reliability. This is where the importance of a business credit report comes into play.

Unsure of what factors into a business credit report or how it works. In this article, we’ll cover everything about business credit reports, from what it is to how to check your business credit score and how businesses can use these reports to make informed financial decisions.

What Is a Business Credit Report?

A business credit report provides a comprehensive record of a company’s borrowing history, repayment behavior, and overall financial health. Compiled by credit reporting agencies, these reports gather information from trade creditors, public records, and financial statements.

These reports usually include essential details about the company, such as its

• Legal name
• Registered address
• Business type
• Industry classification
• Details of past and current credit accounts, loans, lines of credit, and trade credit
• Bankruptcies, liens, judgments, and UCC (Uniform Commercial Code) filings

The credit score in business credit reports helps lenders and creditors assess the risk of extending credit to the business. It’s important to note the specific scoring models and scales used may vary between credit reporting agencies.

Role of Business Credit Report

A business credit report plays a crucial role in the financial landscape by providing a comprehensive assessment of a company’s creditworthiness and financial health. 

Here are some key aspects of the role of a business credit report:

Risk assessment: Lenders and financial institutions rely on business credit reports to evaluate the risk associated with extending credit to a particular company. The report provides insights into the business credit history, outstanding debts, and any instances of late payments or defaults. This information helps lenders determine whether the business is likely to repay its debts on time.

Financing decisions: When businesses seek financing, whether it’s a loan, line of credit, or investment, lenders and investors often review the business credit report. A positive credit report with a high credit score can improve the chances of securing favorable financing terms, such as lower interest rates or higher credit limits. Conversely, a poor credit report may lead to higher interest rates or even rejection of credit applications.

Supplier relationships: Suppliers also rely on business credit reports to assess the creditworthiness of potential customers. Before extending trade credit or establishing payment terms, suppliers want to ensure the business has a reliable track record of paying its bills on time. A favorable credit report can help businesses negotiate better terms with suppliers and build mutually beneficial relationships.

Insurance considerations: Some insurance companies take business credit reports into account when determining premiums or coverage options. They may view a business with a strong credit profile as less risky and offer more competitive insurance rates. Conversely, poor credit may lead to higher premiums or limited coverage options.

Partnerships and contracts: Business credit reports are often used in evaluating potential partnerships, joint ventures, or contracts. Companies want to ensure that their partners or contractors have a solid financial foundation and are likely to fulfill their obligations. By reviewing the business credit report, businesses can assess their potential partners’ financial stability and reliability, mitigating the risk of entering into agreements with financially unstable entities.

Overall, a business credit report is a vital tool for assessing creditworthiness, making informed financial decisions, and establishing trust in the business community. It helps businesses secure financing, negotiate favorable terms, build strong supplier relationships, and make informed decisions regarding partnerships and contracts.

What Information Is Needed to Check a Business Credit Score ?

To check your business credit score, you typically need to provide specific information to the credit reporting agencies. Here are the key details usually required:

• Business identification information: This includes the legal name of your business, any other names under which your business operates, business address(es), and contact details.
• Employer Identification Number (EIN) or Tax ID Number: The EIN or Tax ID number is a unique identifier assigned to your business by the Internal Revenue Service (IRS). It is necessary for corporate credit reporting agencies to link your business credit information accurately.
• Business bank account information: You may be asked to provide details about your business bank accounts, such as the account numbers and the names of the financial institutions where your accounts are held. This information helps verify your business’s financial activities and may be used to cross-reference transaction data.
• Trade references: Trade references are suppliers or vendors with whom you have established credit relationships. They can vouch for your payment history and creditworthiness. Providing trade references helps corporate credit reporting agencies validate the information in your credit report.
• Financial statements: Some credit reporting agencies may require you to provide financial statements, such as profit and loss statements, balance sheets, or cash flow statements. These statements offer a comprehensive view of your business’s financial performance and stability.

How to Check a Business Credit Score?

Checking your business credit score involves a few steps to ensure you have access to accurate and up-to-date information. Here are the steps on how to check your company’s credit score:

1. Choose a credit reporting agency

The first step is to select a reputable credit reporting agency that provides comprehensive business credit reports. Each agency offers different credit score models tailored to meet various business needs. 

Here’s a breakdown of the few major credit agencies and their credit score models:

• Experian: Utilizes the Intelliscore model, with a good score typically falling within the range of 76 to 100. This model considers factors such as a company’s historical financial performance, payment history, background, and ownership. It’s suitable for businesses seeking a comprehensive assessment of credit risk and financial performance.
• Dun & Bradstreet: Offers the PAYDEX Score, where a good score is generally considered to be 80 or above. This score reflects a business’s past payment performance based on trade experiences. It’s ideal for businesses wanting to assess their payment history and likelihood of the timely debt payment.
• Equifax: Provides the Business Credit Risk Score that gives a free general estimate of overall credit standing and is not utilized by lenders or creditors to assess creditworthiness. This score ranges from 101 to 992, with higher scores indicating lower credit risk.

2. Gather required information

Before requesting your business credit report, gather all the necessary information needed to ensure accuracy.

This includes:

• Business identification details such as the legal name, any other operating names, business address(es), and contact information.
• Employer Identification Number (EIN) or Tax ID number.
• Business bank account details.
• Trade references, which are suppliers or vendors with whom you have established credit relationships.
• Financial statements, such as profit and loss statements, balance sheets, or cash flow statements.

3. Request your business credit report

Contact the chosen credit reporting agency and follow their process for requesting your business credit report. This may involve submitting an application or filling out an online form. Some agencies may require additional documentation or proof of identity to ensure accuracy and security.

4. Review your credit report

Once you receive your business credit report, carefully review it for accuracy and completeness. Pay close attention to details such as business information, business credit history, outstanding debts, and any other relevant financial information.

5. Understand the good score range

Each credit reporting agency has its own definition of a good credit score range for business credit assessment. Understanding these ranges can help you interpret your score effectively.

• Experian (Intelliscore): A good score typically falls within 76 to 100, indicating lower credit risk and stronger creditworthiness.
• Dun & Bradstreet (PAYDEX Score): A good score is generally considered to be 80 or above, reflecting a better payment history and a higher likelihood of timely debt payment.
• Equifax (Credit Risk Score): For Equifax’s Business Credit Risk Score, a good score typically falls within the range of 670 and above. This range indicates lower credit risk and stronger creditworthiness for businesses.

6. Address errors or discrepancies

If you identify any errors or discrepancies in your business credit report, promptly notify the credit reporting agency. They will guide you through their dispute resolution process to rectify inaccurate information and ensure the integrity of your credit profile.

How Are Business Credit Reports Used?

Business credit reports are used by various entities for different purposes:

Lenders: Banks and financial institutions use credit reports to evaluate a company’s creditworthiness when considering loan applications.

Suppliers: Suppliers use a company’s credit reports to assess a business’s payment history and reliability before extending trade credit.

Insurance Companies: Insurers may consider a business’s credit report when determining premiums or coverage options.

Investors: Potential investors may review a business’s credit report to evaluate its financial stability before making investment decisions.

Partners and Customers: Other businesses may use credit reports to assess potential partners’ or customers’ financial health and stability.

How Credit Managers Can Leverage Business Credit Reports for Informed Decisions?

Now that you know who all stakeholders use business credit reports to gauge financial stability. Let’s explore how credit managers, as crucial users of business credit reports, leverage them.

Assessing creditworthiness and financial stability

Business credit reports provide detailed credit history, including payment behaviors and outstanding debts. Credit managers can use this data to evaluate a company’s creditworthiness. Positive indicators like on-time payments and low credit utilization signal good creditworthiness. Financial statements in the report offer insights into the company’s financial health, guiding decisions on credit approval.

Identifying risks and opportunities

Credit reports highlight potential risks such as late payments and high debt levels. Identifying these red flags helps credit managers mitigate risks by adjusting terms or requiring collateral. Conversely, strong credit histories and positive financial metrics can lead to increased credit limits and favorable terms, supporting business growth and strengthening relationships.

Monitoring and adjusting credit policies

Regular review of business credit reports allows for continuous monitoring of existing credit relationships. Detecting early signs of financial instability, like declining credit scores, enables proactive adjustments to credit policies, minimizing the risk of defaults and bad debts.

How HighRadius Can Help in Better Credit Decisions?

Our AI-based Credit Risk Management Software leverages cutting-edge technology to provide real-time credit visibility and enhance decision-making processes. Here’s how:

• Credit Workflow Management

  By leveraging AI, the tool prioritizes customer accounts for review, focusing first on high-risk accounts. This proactive approach mitigates risks early and ensures timely, informed credit decisions.

• Credit agency integration

  This tool integrates with over 35 global credit agencies, providing comprehensive, up-to-date credit information. This enhances the reliability of credit assessments by accessing diverse data sources.

• Financial statement data extraction

  It automates the extraction of financial data from public sources and uploaded documents. This ensures accurate and timely financial analyses, supporting better-informed credit decisions.

• Credit review & decisioning

  It automates reviews for low-risk customers, increasing coverage to 100%. This allows analysts to focus on complex cases, improving efficiency and timely credit assessments for all customers.

• Predictive analytics and risk assessment

  This tool uses machine learning to predict future credit risks by analyzing historical data and trends. This allows proactive risk management by adjusting credit limits or terms based on anticipated defaults.

• Real-Time data analysis

  AI-powered systems analyze vast amounts of data in real-time, providing immediate insights into a company’s credit profile. This enables quick responses to market changes and more timely credit decisions.

Conclusion

Understanding and monitoring your business credit report is essential for maintaining a healthy financial profile. By regularly checking your business credit score, you can identify any areas of improvement and take proactive steps to build a strong credit history. Remember, a good business credit score opens doors to better financing options, favorable supplier terms, and increased trust among business partners.

FAQs

1. Are business credit reports public?

Yes, business credit reports are public and accessible to anyone interested in obtaining information about a business’s creditworthiness and financial history. Unlike consumer credit reports, which are subject to stricter privacy regulations, business credit reports are considered public records.

2. What is considered a good business credit score?

A good business credit score typically falls within a specific range, depending on the credit reporting agency. For example, Experian (Intelliscore): A good score usually ranges from 76 to 100. Dun & Bradstreet (PAYDEX Score): A good score is generally considered to be 80 or above.

3. Do you need permission to pull a business credit report?

No, you do not need permission from a business owner to access a business credit report. Unlike personal credit reports, which are subject to regulations requiring permissible purposes for access, business credit reports can be obtained without the consent of the business owner.