Creditworthy is defined as a person or business that is considered suitable to receive credit because of a positive history of paying money back. As individuals we know our personal credit scores play an integral role in our lives. Credit scores impact the interest rates we pay, the type of mortgage we qualify for, the premiums we pay on our auto and home insurance, our ability to buy or lease a car, and even impacts our ability to gain employment.
As a business owner, creditworthy takes on a whole new meaning for a business. To be considered suitable to receive credit as a company, a business needs to have positive business credit reports and favorable business credit scores. You are probably familiar with the three major consumer credit agencies; Equifax, Transunion, and Experian.
Did you know the three dominant players in the business credit reporting industry are Dun & Bradstreet, Corporate Experian, and Equifax Small Business?
These three major agencies have millions of companies listed in their databases containing in depth information on each business such as a company profile, financials, corporate registrations, credit history, public records, predictive payment behaviors, etc. All of this data is compiled into a readable format called a business credit report.
Similar to personal credit scoring system such as FICO®, the business credit agencies have their own unique scoring models to simplify the process of assessing credit risk. While FICO® is a uniformed scoring system adopted by the majority of lenders and banks in the U.S., there is no uniformed business credit scoring system adopted for businesses.
Each business credit agency has its own internal scoring systems. For example, Dun & Bradstreet uses the PAYDEX® Score for its model, while Equifax Small Business uses a credit risk score and business failure score model. When it comes to pulling reports, suppliers tend to review businesses through D&B’s database while lending institutions tend to pull from Corporate Experian and Equifax Small Business.
Is establishing business credit difficult?
The whole process of meeting lender compliance guidelines, setting up the proper business credit foundation, obtaining a D-U-N-S Number, knowing where to apply for credit, who to apply for credit with, what it takes to get approved, and getting listed with all three major business credit agencies can be an uphill battle and an ugly experience if done incorrectly.
One of the biggest roadblocks facing entrepreneurs and small business owners is what exact steps need to be taken to begin establishing business credit. The reality is there’s a lot misinformation circulating the web full of incorrect, misleading and outdated information.
Unless you set up the proper foundation you can find yourself peddling backwards and scratching your head trying to figure out why your small business start up or existing business continues to get turned down for credit. Issues such as mismatched data, duplicate credit files, a non-business listing, unverifiable company records, and inaccurate information, are just a few of the issues that trigger a denial of credit.
The good news is rather than spend countless hours on the web trying to figure out what steps you need to take to start establishing business credit there are business credit building systems available in the marketplace that take all the guesswork out of the entire process.
These software based platforms cover all aspects of the business credit building process including incorporation, corporate conformity, registrations, and getting listed with the business credit agencies. In addition, some of the more advanced systems allow you to monitor your business credit reports on a regular basis which is crucial to protecting and maintaining your positive business credit ratings.
By establishing business credit a company has the ability to obtain 10 to 100 time’s greater credit capacity compared to personal credit. Potential business partners, businesses, creditors, lenders, suppliers, and insurance companies, all use business credit reports to evaluate and assess the risk of a business. A creditworthy business is a powerful asset that provides you a great deal of leverage when acquiring funding.