The nuts and bolts of business credit

Check your business credit rating

Everything You Need to Know About Business Credit

Many small business owners use personal credit to run their business.

However, using your own credit could put you at risk if your business is ever in trouble. Plus, many creditors today are moving away from relying on personal credit alone when judging a business’s financial health (since personal credit is not considered an ideal predictor of business behavior).

Smart creditors are taking advantage of new blended commercial scoring tools that integrate both personal and business credit attributes to assess and predict business credit risk.

However, if you are a sole proprietor, your personal credit and your business credit are closely linked in the eyes of banks and other lenders. So it is important to take steps to protect both. You should monitor, evaluate and protect your credit standing just as you would protect any other business or personal asset.

Here’s what you need to know about establishing, building and protecting your business credit:

How to Establish Business Credit

If your business is new, or if you haven't yet established business credit, obtaining tradelines is a great way to begin building your business credit report.

How to ensure creditors and suppliers can validate your business information:

  • Incorporate or form an LLC (Limited Liability Company) to ensure your company is seen as a separate business entity
  • Obtain a federal Employer Identification Number
  • Open business bank accounts in your legal business name
  • Set up a dedicated business phone line in your business name and make sure it's listed

Once you've completed the steps above, you can request business credit in your company name. Your business trades then are reported to Experian, creating a robust business credit report that gives lenders and suppliers quality information about your company and boosts your ability to obtain loans, increase credit lines and earn more favorable credit terms.

How to Build Business Credit Score

Credit scores are complex statistical models for predicting credit risk. While there is no guaranteed way to improve a business credit score, here are a few steps you can take to ensure that your business credit report reflects the best scores possible for your situation:

  • Check your business credit report regularly and verify that the information in it is accurate and up-to-date.
  • Establish business credit with companies that report trades. Remember, not all business creditors report their trade information.
  • Pay your creditors on time. Historical payment behavior with previous creditors plays a major role in calculating your business credit score.
  • Try to keep you credit balance at 20% to 30% of your credit limit 
  • Make sure your vendors are reporting your payments to build a positive credit history to the credit reporting agencies

How Your Business Credit Score is Determined

Business credit scores range from 0 to 100, with 0 representing a high risk and 100 representing a low risk. Generally, business credit scores above 75 are considered excellent.

Scores are based on a number of factors contained in your business credit report. Your Experian credit score is calculated by a statistically derived algorithm, designed to determine risk based on multiple factors:

  • Credit: Number of trade experiences, balances outstanding, payment habits, credit utilization and trends over time
  • Public Records: Recency, frequency and dollar amounts associated with liens, judgments or bankruptcies
  • Demographic Information: Years on file, Standard Industrial Classification (SIC) code and business size

How Long Will Data Remain on Business Credit Reports

Experian uses standard industry and government guidelines for keeping data on file. Dating data ensures that the information presented in a report is current enough to create an accurate picture of financial health.

  • Trade data: 3 years
  • Bankruptcies: 9 years and nine months
  • Judgments: 6 years and nine months
  • Tax liens: 6 years and nine months
  • Uniform Commercial Code filings: 5 years
  • Collections: 6 years and nine months
  • Bank, government and leasing data: 3 years 

How to Protect Your Business Credit

You know it's important to check your personal credit report, but did you know it's just as important to make sure your business credit report accurately reflects the status of your small business' credit? The amount of credit and the terms, or rate offered, will be determined by your business credit history and score.

It's also vital that you monitor your business credit for these reasons:

  • Just as you monitor your suppliers' credit rating, your customers also monitor yours. You could be losing business without even realizing it.
  • With increases in commercial credit fraud, it is important to monitor your business credit report for transactions that you did not initiate.

With Experian business credit reports, you can keep track of your own company's business credit in the same way that you monitor your customers and suppliers.

Proactively monitor business credit so you can:

  • Check for completeness and accuracy
  • Learn how your company compares with others in your industry
  • Examine the strengths and weaknesses of your file
  • Develop a strategy to improve your company's credit standing 
  • Better control risk
  • Allocate funds more efficiently
  • Increase cash flow
  • Build stronger customer relationships

Receive alerts regarding new derogatory information and prioritize risk. Purchase online business credit reports to monitor the health of your small business or to make insightful decisions about prospective business partners, customers and suppliers.

How to Correct Your Business Credit

If you need to dispute certain details on your business credit report, please contact Experian Commercial Relations in writing. You will need to provide all of the following:

On the report, circle the specific items in question and provide the correct information. Provide supporting documentation when available.

On current company letterhead, list all variations of your company name and any “formerly known as” names that your company has operated under for the past 10 years.

List your company’s current and previous addresses (physical and Post Office Box addresses) for the past 10 years.

Provide the signature and the phone number of an officer of the company and send to:

Experian — Commercial Relations

PO Box 5001

Costa Mesa, CA 92628-5001