Much like personal credit reports there are three major credit bureaus that compile information on business entities. These three major credit bureaus are completely separate and each provides business credit information for a fee. They all have separate scores to help the viewer make a quick assessment of the company’s risk.
Unlike personal credit scores and reports when a third party views a business credit profile, they do not need permission in advance nor have to inform the company they have reviewed its credit. Since the laws associated with business credit are minimal, there is no protection of privacy for a business credit profile.
Most companies do not even realize decisions are being made and future success may be limited based on what is visible on the credit, whether it is accurate or not. Companies that do not pay attention to their business credit profile may find mistakes. Reports can reveal that the last time information was updated about the firm was when the number of employees was substantially lower. Those viewing the credit may have the impression the firm is much smaller than expected and could not handle the large orders the potential account may need filled.
A business may have 150 different creditors including vendors, lenders, and varied accounts but this does not mean the creditor will automatically update the firm’s payment history to the business credit bureau. Not every creditor updates to Dun & Bradstreet, Equifax, and Experian. If a firm was late on payments to one creditor it may impact the business credit scores dramatically. If the amount of debt owed on the delinquent account is comparably higher to the rest of the trade lines on credit it could be devastating to credit scores. Imagine that many firms are rejected for new business based on misinformation reported to the bureaus.
For example, firm AZ is on the threshold of getting orders from major department stores. They assume they have excellent credit since they have at least 50 vendors and have been in business for 5 years. They do not realize that only five of the 50 creditors actually report to Dun and Bradstreet. Out of the five vendors that did report, the highest debt owed is $10,000 and that account had a recent delinquency. The one recent delinquency occurred due to a change in bookkeepers. Although they have many vendors with much higher open balances and have had only one late payment on a small account, the fact that the highest open balance on credit is associated with a late payment drops the scores dramatically. Also the company information is incorrect since it only displays three employees instead of the 30 presently working there. Between the recent delinquency and the company never updating current information the firm is viewed poorly and rejected by the department store.
They have currently contacted us to work on the business credit in hopes it will be done before the government makes a decision.
Feel free to reach out to me if you have any credit questions about your business credit reports.
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