Getting Started with Business Credit
Understanding what's in a credit report, how scores are created, how to read a credit report, how to build business credit and more
A healthy business credit report can play a vital role in growing your business.
In order to understand how companies are leveraging their strong business credit scores to land bigger contracts, secure better terms and earn new funding opportunities, it's critical to understand what is in a report and how you can improve your rating and scores.
Understanding Business Credit
"A business credit score measures the likelihood that a business will remain solvent for the next 12 months"
And while this is accurate, the definition doesn’t do justice to the scope of how business credit is used throughout the business world.
At its core, business credit is the trust that one company puts in another company and answers the question:
"How likely is this company to pay me in the future for the products or services that I offer today?"
As a company improves its business credit scores, a second company can have greater assurance that the invoices and loans will be paid and the products and services will be delivered.
Especially for a business owner who wants to expand their company quickly, a strong business credit report can open up opportunities that lead to explosive growth because improved credit scores and higher credit limits tell others that you are a more trustworthy partner.
The result of improved business credit scores can come in many forms:
- Perhaps a bank offers you the size loan you need to expand,
- A supplier offers you terms that help improve your cash flow or
- You qualify for a contract that was previously unattainable.
Reading a Business Credit Report
1. Payment Data
This is where Creditsafe gives an overview of the type of Payment Data information that we’ve collected on your business, such as
- How many Trade Lines are reported?
- Is anything being reported past due?
- What’s been the payment trend over the last year?
It’s worth noting that this section can be sparse for many small businesses that haven’t been extended much credit and one of the key reasons we've made it free to automate adding trade to your business credit report.
2. Business Credit Score and Credit Limit
This is where our data geeks take all the wonderful information we have on your business and turn it into actionable data. This allows other companies to easily make decisions on how they should do business with you.
The two most commonly used metrics are:
- Business Credit Score
- Credit Limit
We wish we could predict that your company (and all companies for that matter!) will be around for the long-haul and able to make good on the delivery of their payments, products and services, but that’s not reality. Instead, our Business Credit Scores use advanced statistical techniques to help determine the financial stability of your company.
Similarly, we use advanced statistical techniques to help determine a Credit Limit for each company where we have sufficient data. When another company pulls this report, they’ll often use this number as a proxy to understand if your company can handle the size of contract you’re after and the terms they'll extend for such a contract.
3. Corporate Data and Legal Filings
These sections are a bit of a catch-all for all the non-payment Legal Filings information that we have on a company, such as the corporate information we grab from their public filings, the officers of the company, any suits, liens, UCCs and judgments we have on file, etc.
Some of this information, such as the officers and the corporate address are fairly easy to update and can be critical to have correct and consistent when submitting a credit report as part of large proposal. If you haven’t taken an in-depth look at the corporate information we have on your company, get started by signing up for free alerts on your company and we'll send you more information around how to update and add information to your credit report.
Building Business Credit
When looking to get a loan, contract or line-of-credit, one of the most common questions we hear is:
- How do I build my business credit?
The snarky answer might be something like:
"Get bigger contracts, pay your bills on time (or even early!) and make sure those payments are reflected in the Creditsafe database"
And while that’s true, there’s a lot more to healthy business credit report than just paying your bills and for most business owners it starts with developing a strategy to separate your personal credit from your business credit.
So, how do you start separating your business credit from your personal credit?
For most high-growth businesses, it starts with two things:
Focus on asking your partners for an invoice and terms (such as net 30 days) whenever possible
Make sure these transactions are showing up in your business credit report (often called “trade references”)
When you pay your bills on terms and make sure those transactions are showing up in your business credit report, you’re effectively demonstrating to other companies that you can be trusted to pay them in similar financial situations.
A key reason we recommend paying on terms and not with a business credit card is that most of the companies offering business credit cards do not report positive transactions to business credit trade bureaus. In other words, your business credit card may tell us when you’re not paying your bills, but likely won’t be shared with Creditsafe when you’re paying on time.
The final key to effectively building your business credit is to:
Make sure that your information is being posted to your credit report
Good news is that if you’re working with vendors, suppliers or partners who are already reporting to Creditsafe, then that data is likely already on your report.
- How do you get payment transactions on your report if your business partners aren’t supplying that information to Creditsafe?
We've made it trivial for you to add your trade payment data directly to Creditsafe. Simply authenticate your accounting tool and we'll automatically pull relevant payment data.
To get started, sign up for our complimentary Stay Stay Program.
"Overall Creditsafe is a great resource, staff are always available and the product is reliable. Creditsafe aides me in making decisions in order to extend commercial credit to customers. Compared to the competition I feel it's much more reasonably priced, data is accurate and more information on possible business links and principal data is readily available."
Credit Manager, Chaney Enterprises
"Creditsafe provides us a platform where we can help our customers grow their business, by building credit. We also utilize the reports to help us make better credit decisions for our customer and their terms."
Accountant, Level 10 Contractor
"Creditsafe has been constantly reinventing themselves and provide the Credit Strategies Team at Pioneer a fresher perspective and level of confidence into an applicant’s credit worthiness for a fraction of the cost."
Credit Strategies Manager, Pioneer Balloon