Business Credit Guide

Business credit is very different from personal credit. Your business is a separate entity from you, so you should establish a separate credit profile for your business. Keep in mind though, the credit reporting agencies that handle business credit (Known as Commercial Credit Reporting Agencies, or CCRA’s), and the rules for establishing business credit are very different than what you’re accustomed to for your personal credit profile.

What is Business Credit

At its core, business credit is simply a measure of the ability of your business to repay lenders. So in that respect it’s pretty much the same as your personal credit. But that’s where things break down. The method for establishing business credit, and maintaining it is completely different from the way personal credit is handled.

Commercial Credit Reporting Agencies

With personal credit, you have the Big 3 credit reporting agencies – Equifax, Experian and Transunion. However, business credit is tracked and reported on differently due to the volatile nature of commercial credit. Most businesses go under in their first 5 years of operation, so extending credit to a business is a riskier proposition and needs to be handled differently.

The biggest business credit reporting agency is Dun & Bradstreet, also known as D&B. The other major business credit reporting agencies are:

Experian Smart Business Reports is a division of the Experian you probably know of from your personal credit report
Equifax Small Business Enterprise also an arm of the Equifax you probably already know about
PayNet prides itself on having the most information on long term business debt
Cortera combines business data form their database as well as from other business owners who have dealt with your business
ChexSystems is used by 80% of banks to decide whether or not to let you open a business bank account

Establishing a credit file for your business with D&B is very different than how you would establish a personal credit report. Your personal credit report will automatically be started when you open a line of credit, but your business credit will not automatically begin when you open a business. This is important to keep in mind. You could be in business for 20 years and never have established business credit. You have to actually apply to D&B for a D-U-N-S Number (more on that later) in order to start building your business credit file.

The reason for this is due to the way you establish business credit. When you open a business credit card, get a line of credit for your business or take out a commercial loan for your business, it is more than likely that you are personally liable for those debts, not your business. So from the standpoint of a credit reporting agency if there is a default it is the owner of the business in default, not the business itself. This will not reflect on your business credit profile (if you even have one), but it can and probably will reflect on your personal credit.

How to Establish Commercial Credit

So, in order to establish credit for your business, you need to open lines of credit where you are not the guarantor, but rather the business itself is. This is not as easy to do as you might think. There are 4 tiers of business credit and it takes at least a few months to progress through each tier.

The first step is to go to D&B and apply for a D-U-N-S Number in order to start building your business credit profile. You can get started for free, although expect to be asked to pay for additional services that are designed to help you “get established”. These might be worth it to you, depending on how much leg work you’re willing to do yourself.

Then you’re going to want to get lines of credit from vendors in the name of your business. Even if it’s small, getting on a net-30 arrangement with Staples can at least get the ball rolling. At this point it’s all about building credit in the name of your business.

How Do Commercial Credit Reporting Agencies Score Credit?

Commercial Credit Reporting Agencies (CCRA’s) access information from a number of sources to determine your business’s creditworthiness. This includes official sources such as:

– Your initial business registration with your state
– Lawsuits, liens or judgements involving your business
– Bankruptcy filings from court
– Corporate financial reports (if available)
– Uniform Commercial Codes (UCC Filings)
– Payment history from suppliers, vendors and other creditors
– Federal government contracts, grants, loans or debarments

In addition to this, some data brokers will utilize info from unofficial sources like Yellowpages and other online business directories, news or media stories that mention your business, and even self-reported data form the business owners themselves. All of this data comes together to form your business credit profile that is then made available through the various Commercial Credit Reporting Agencies.

Business Dough