Business Credit 101

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There are many benefits for businesses with strong business credit profiles. A healthy credit rating could help gain new partners and clients, and can be essential for getting the capital that small business owners need to grow and meet expenses. Business credit can fund the needs of growth, for example, by adding inventory, as well as expenses and obligations, such as paying monthly payroll. The ability to tap credit markets, especially for small businesses, depends in large part on how well a company manages their credit profile.

For many companies, establishing, building, monitoring, and maintaining a strong business credit profile can be the key to greater efficiency, improved decision-making, and securing the financing that is needed to help small businesses grow.

5 Key Steps to Build Your Business Credit

1. Determine if you have a business credit file

The first step for a company looking to build a strong credit rating is to determine if they have an existing business credit file with a business credit reporting agency. If your company already has a credit file, examine it thoroughly for correctness. If there are any inaccuracies, a credit advisor can walk you through what you need to do to fix any inaccuracies and answer any questions you may have.

If your company does not have a credit file, you can contact Dun & Bradstreet Credibility Corp., the leading provider of credit and credibility solutions for businesses, to apply for a unique business identification number called a D-U-N-S® number. Used by companies worldwide, a D-U-N-S number can help a business easily track and evaluate their credit profile, in addition to taking advantage of various supplemental services such as establishing a full credit file, improving your credit scores and ongoing monitoring of your credit profile. It’s important to be aware that requesting a D-U-N-S number is only the beginning of the process—a company must then take the steps to build their complete credit profile.

2. Create a business credit history

Far too many small business owners make the mistake of using personal credit to secure financing for their company. Whenever possible, small business owners should avoid linking personal credit to their company’s credit by creating a business credit profile. The dangers of using personal credit are substantial. For example, if a small business owner’s personal credit is used to back loans made to a company, then the owner’s assets could be claimed by a lender if the company is unable to repay the loan. In that case, the individual’s personal credit rating would then suffer. It’s a good idea to establish business credit by allocating business expenses to the company and establishing a payment history using a commercial bank account.

In addition, many small business owners mistakenly think that a personal credit profile automatically creates a business credit profile. It doesn’t. To establish a business credit profile, you can request a D-U-N-S number through Dun & Bradstreet Credibility Corp.

3. Pay on time

Once a business credit profile is established, you can start building a strong business credit history by making timely, regular payments on debts owed. This is the key component in building a strong credit profile. There are many other factors that play a part in determining your credit rating, including revenues, total debt, and the type of business, but payment history is of the utmost importance.

The credit advisors at Dun & Bradstreet Credibility Corp. can assist you with ensuring that your largest suppliers and vendors regularly report your payment experiences to D&B, one of the largest credit bureaus in the United States.

4. Monitor your credit profile

Companies should meticulously manage their credit profile. The process of monitoring a business's credit profile includes checking for errors, omissions, and other reporting mistakes. Clerical errors are one of the most common ways that a credit rating can be damaged through no fault of the business. If such an error occurs, a company should first verify the mistake and then contact their respective credit bureau. A payment history might be omitted, either intentionally or unintentionally. If a business is trying to establish good credit, omissions of payment history can slow the process. Companies should be sure to verify that vendors and suppliers are promptly reporting payments received.

Monitoring your business credit profile with products like SelfMonitor by Dun & Bradstreet Credibility Corp. will alert you to any changes in your credit rating or profile that could affect dealings with vendors, clients and lenders. Having accurate financial information, in addition to contact information such as your address and telephone number, is important.

The process of monitoring your credit profile can be an arduous task without the services of a credit bureau. Here are a few important scores provided in a credit report by Dun & Bradstreet Credibility Corp. that small businesses should monitor in order to maintain or improve their credit score:

  • D&B Rating
  • Financial Stress Score
  • Commercial Credit Score
  • D&B’s PAYDEX Score
  • D&B’s Credit Limit Recommendation
  • Supplier Evaluation Risk Score

 

5. Monitor customer and vendor credit

By monitoring the credit of customers and vendors, companies can make more informed decisions about who they do business with. Better information can improve cash flow and risk management, and potentially result in a higher credit rating for your company. When choosing suppliers, a company should consider whether or not they report transactions to credit bureaus. Also, small businesses should always monitor the credit of customers whom they choose to extend credit to, using that information to decide the terms and how much credit to extend to such customers.

For more information on Dun & Bradstreet Credibility Corp. products and services, visit www.DandB.com or call 1-855-444-3093 to speak with a credit advisor.