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Business Guide To Credit Reports

Understanding how credit scores and reports function is of vital importance to small businesses. Credit scores can determine a business’ interest rates, access to loans, and overall bottom line. A reputable credit reporting service can issue business credit reports to assist owners in understanding their companies’ credit worth. A recent study by Business Credit Services stated that 86% of companies were unaware of their credit reports — which in turn indicates that they were uninformed about the many benefits, pitfalls, and pricing concerns surrounding credit reports, scores, and credit monitoring. This guide provides an outline of those topics and a perspective on the importance of credit for small businesses.

Benefits

Haggling

When you know your business’ credit report before someone else, you can go into lending situations and opportunities with the knowledge of what your business is worth based on credit. This keeps lenders from trying to give you higher interest rates than normal, and also gives you more power in a situation that is usually very one sided. With the knowledge of what your score looks like, you won’t be blindsided by misleading facts about your credit report.

Credit Report Knowledge

There was a recent study done by Business Credit Services that stated that 86% of companies had no clue that there was a completely separate credit report for their business besides their personal one. This means by educating yourself about your credit reports, you can have a competitive edge in knowing what most companies and business owners don’t.

Credit Security

With constant credit report monitoring, you have the ability to catch credit fraud involving your business before it has a chance to really make a dent in your report, or worse, headlines. The problem of credit fraud and theft has become much more common now with advanced technology being so easily accessible by the general public and criminals. Besides the common thieves who are out to just steal your credit number, there are also companies that thrive off of the same information. With credit monitoring, you can make sure this problem never gets a chance to become a horrific event.

Increase Your Credit Score

The best and only way to increase your credit score is by knowing it in the first place. If you have no way of accessing a credit report, then there is no possible way for you or your business to know your accurate credit score. This score is vital, and the quickest way to increase it is by knowing the problems that are stated on it and understanding the best way to change and fix them. If you don’t know the problems that are stated on your report, then any agency checking on your credit can see it. Then, you will be just as surprised as the lender when they tell you about your credit problems.

Pitfalls

Implies Standardization

The business credit reporting industry is not standardized or regulated in the same way as the consumer credit reporting industry. Certain companies exist that compile credit reports on businesses, but they are not as entrenched as the consumer credit reporting agencies or backed by federal law. This sort of guide implies a level of industry standardization that does not yet exist for businesses.

Creates Unrealistic Expectations

A guide of this sort can lead to unrealistic expectations regarding the likelihood a business can obtain substantial credit in its own name without considering the personal credit of its owners. This is particularly true if the business is small or organized as anything other than a corporation. Traditionally, business credit reporting has focused on the public corporation. Small businesses and other legal entity types have existed on the fringe of credit services, mostly because the financial affairs of these types of businesses are private.

Normalizes Information

Generally, written guides normalize information. Establishing business credit can be a very particularized pursuit, however. The availability of business credit changes on a daily basis and relies on a number of unique factors. Credit availability can depend on market fluctuations, regional peculiarities or existing government incentive programs for special populations. It is difficult for a static document to encompass this range of possibilities.

Limited Usefulness

There are no laws that require creditors to report the status of your account to business credit reporting agencies. Further, unless you register your business with the credit reporting agency for the express purpose of establishing a credit file, it is likely your business will fly under the credit radar. A business credit guide can only reveal the theory behind a system that could work a certain way, provided everyone involved in the system decides to use it as intended.

It is inevitable that at some point your business will have to make purchases on credit or take out a loan for capital expansion or cash flow. Before you can do this, the potential creditor will order your company’s credit report. Credit reports hold important information regarding your past and present financial relationships. Employing the services of a reputable credit reporting service ensures all your company’s information contained within that report is current and accurate.

Pricing

Credit Report Services

A poor credit report could be inaccurate, outdated or incomplete. Using a poor credit report could have potentially devastating effects on your business. A credit report service monitors your company’s financial profile and ensures accuracy of information. This will also help you avoid doing business with people who are a credit risk. Fees are usually reasonable, with no long-term contracts required to take advantage of the services.

Credit Risk Management

Credit risk specialists Dun and Bradstreet have registered over 1 million businesses. A credit risk manager will evaluate and monitor credit risks, while offering predictive credit scores for future associates. Fees start at around $100 for a one-off consultation. Securing the services of a full-time credit manager will cost less over time.

Conclusion

There are many benefits to knowing your business’ credit score and having access to its credit reports. Knowledge of your score prepares you to approach lending situations competitively, and credit monitoring services help protect a business against fraud and theft. However, business owners should be wary of assuming that good credit reports are a foolproof guarantee of low loan rates. The credit report industry is not standardized for the business sector, and lenders take into account factors as variable as market fluctuations, regional anomalies, and the owner’s personal credit score when determining rates. A good credit report and credit risk management service can help you accurately monitor your company’s financial profile and provide predictive scores to give you an increased chance of enjoying the advantages of good credit.