In addition to viewing personal credit reports, banks such as Chicago-based Seaway are beginning to rely more on commercial credit reports to get a more accurate understanding of companies that solicit their help, says Williams. Banks may also pull a business’ credit report when deciding about a loan, especially if the business is well established, she adds.
How is it scored?
Credit reporting agencies dole out commercial credit scores much like personal credit scores, and each one has its own way of grading reports. While they often use different scales in scoring, some similarities do exist.
The scoring systems of Dun and Bradstreet, a provider of credit information and credit reports, and Experian both use a scale of 1 to 100, with a score of 80 or better being preferred—meaning that all payments are prompt. The national average for businesses is around 58.
The best way to find out what information credit agencies have compiled on your company is to check your business credit report twice a year, recommends Bates Moss. Biannual monitoring is beneficial for a couple of reasons: It shows business owners what lenders might see when they pull information on their companies, and it can also help owners identify and correct erroneous data.
Businesses can also take charge of the report by asking vendors, suppliers, and lenders they work with to report transactions to credit agencies, key opportunities to enhance their credit profile. “If you are paying a particular vendor well, you want to make sure that makes it into your credit report,” says Meder.
Williams says the most salient component of a commercial credit report is the record of a company’s timely payments. Banks like to see borrowers who repay their debts, and the level of debt should be consistent with the company’s line of business, she adds. “Entrepreneurs shouldn’t be overextended in their credit,” warns Meder, who notes that a high debt-to-credit ratio is a key factor that will negatively affect the score, just as it does a personal credit score.
Repairing the damage
If a business owner notices an error in the report, he or she should immediately notify the credit reporting agencies and begin the proceedings to launch an investigation. If the negative marks on the report are legitimate, the owner should develop a plan to manage the debt prudently and tackle any internal issues that might have caused problems.
Don’t make it personal
Under the Fair Credit Reporting Act, lenders can review a business owner’s consumer information for business purposes if the business is a sole proprietorship or partnership. While it’s likely that there will always be some overlap of personal and business credit for small business entrepreneurs, Bates Moss says Seedco encourages companies to slowly separate personal and commercial credit. “We support moving the business owner from a personal credit score to a hybrid credit score, to graduating to a business credit score,” she says.
Meder asserts that ultimately when it comes to taking excellent care of your credit, “Responsibility extends beyond the business to the owner.”
Emerald S. Morrow is a freelance contributor to Black Enterprise.