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Consumers generally understand that their financial history is chronicled in credit reports and summarized by credit scores. But did you know businesses also are assigned credit reports and scores? These are used to assess creditworthiness by interested parties (lenders, suppliers, vendors, contractors and others). The four major credit reports—Dun & Bradstreet PAYDEX, Experian, Equifax and FICO SBSS—contain much overlapping information, each in its own format, plus unique features that set each report and scoring system apart from the others. It’s vital for businesses to read, understand and correct their credit reports, for two important reasons: to fix errors that are depressing the business’s credit score; to understand what issues are hurting the business’s credit score and then taking actions to address those issues.
The Major Business Credit Reports
Here is a summary of the products from the four major credit bureaus.
- Dun & Bradstreet: Its primary credit report product is its Comprehensive Report. The report discloses a company’s D&B Rating and D&B PAYDEX Score, along with a series of metrics that predict the company’s future viability credit risk and financial stress. It also details the business’s history, key financial figures and ratios, public filings (judgments, liens and loans), and payment history. The PAYDEX Score is a number between 1 and 100 signifying how quickly a company pays its bills, with scores 80 and above indicating payments are generally made by the due date or sooner.
- Experian: Its most comprehensive product is its Business Credit Advantage Report. It contains company history and key personnel, payment history, credit and financial stability scores, public filings, and score improvement tips. Experian’s credit score, Intelliscore Plus V2, is a number from 1 to 100 based upon a business’s demographics, credit history and public filings. The best scores, 76 and above, indicate a low risk that the company will default on its loans.
- Equifax: The Equifax Small Business Credit Report contains the company’s profile, credit score, public filings, credit line utilization and payment history at summary and detail levels. The Equifax Credit Score predicts the likelihood of a payment delinquency or default in the next 12 months. Scores range from 101 to 992, with higher scores indicating lower risk. The Equifax Business Failure Score predicts bankruptcy in the next year with scores ranging from 1000 to 1610, with higher scores indicating lower risk.
- FICO Small Business Scoring Service: FICO doesn’t offer a business credit report, but it does issue an influential credit score for small businesses. The score, based on the credit history of the business and its owners, ranges from 0 to 300, with higher scores indicating lower credit risk. Most lenders require a minimum score of 140 to 160.
Components of a Business Credit Report
Despite their unique formats, the major business credit reports have several areas of commonality:
- Company profile: The company profile section discloses basic facts about the business, which typically includes headquarters location, contact information, formation year, industry code, sales volume, number of employees, ownership and state registration information.
- Public records: These records usually include court actions, judgments, bankruptcies and liens. You’ll also find UCC filings that document secured loans and the pledged collateral.
- Metrics: These reports will provide their own proprietary credit scores and risk assessments. Some other metrics might include the average amount of time the company takes to pay its bills and how the company utilizes its revolving credit lines.
- Payment information: Debt payment history is summarized and detailed by account in this section. Look for information about delinquencies, defaults, time to pay, current balance and current credit limit.
Other information appears in just one or two of the credit reports, including:
- The D&B Comprehensive Report stands out for several proprietary metrics, including Financial Stress Score (likelihood of delinquency), Data Depth Indicator (how much information is available about the company) and Viability Score (risk of bankruptcy in next 12 months).
- The D&B report also provides information extracted from the company’s recent financial reports and shows key financial ratios.
- The Experian Business Credit Advantage Report provides detailed information about trade credit transactions. Trade credit is extended by suppliers and vendors.
What Does my Business Credit Score Mean?
The fundamental function of a business credit score is to predict whether a company will pay its bills on time. The scores incorporate historical transactional data that compare payment dates to due dates. It’s assumed that a company with a history of missed due dates is riskier than one that pays on or before the due dates. Other information folded into the credit score might include current credit line utilization, maximum credit exposure (the company’s potential credit liability), number of charge-offs, the highest single amount of credit extended, number of recent credit inquiries, and the number of recent new accounts opened.
The FICO SBSS score is different in that it isn’t associated with a credit report. Like the other scores, SBSS predicts the likelihood that a business will making payments on time.
Poor scores and problematic histories can cause businesses to pay higher interest rates on debt, limit or cut off access to credit, disqualify businesses from competing for contracts, sour investors, and cause vendors/suppliers to shy away. It behooves companies with low credit scores to improve their creditworthiness and to correct any mistakes in their credit reports.
Sources of Business Credit Scores
You can get your credit scores directly from D&B, Experian and Equifax, as they are included in their credit reports. D&B also offers a free online credit-reporting service called CreditSignal. You can access CreditSignal at any time to check your credit score and monitor any changes to your credit report.
You can’t obtain your SBSS score directly from FICO. Instead, the score and credit report are sent to your bank or other credit provider. However at least one third-party provider, Nav, offers SBSS scores for free. You can also access D&B and Experian business credit reports from Nav. Other sources of credit scores and credit reports include Credit.net, CreditSafe.com and Scorely. These third-party providers may use their own credit scores and reports, which might not have the same value as the scores from the Big Four.