Having a good business credit rating is important for a number of reasons. Good credit gives businesses access to financing options that they simply would not otherwise have. Not only does it improve the chances that financing will be approved, but it also lowers the cost of borrowing money.
So, how does business credit work, why is it so important that business owners monitor their business credit, and how is it done?
How Scores Are Calculated
A business’s credit profile contains several types of information, all of which are taken into consideration when assigning a numerical value, known as a credit score. Some of the items which affect a business’s credit rating are: payment history, number of credit accounts, balances on the accounts, age of the accounts, and the ratio of available credit, to how much of the available credit is in use.
A good business credit score is built by following many of the same rules one would abide by when attempting to build a solid personal credit rating. For example, payments should be made early, balances should be kept low, and old accounts should be kept open.
Why Monitoring Matters
No system is perfect, and the credit rating system is no exception. Errors can and do occur. Payments may be incorrectly listed as late, or paid derogatory, available limits may be artificially low, and balances are sometimes listed incorrectly.
Vendor accounts (a major means of building business credit) may be incorrectly reported, which can also distort a business’s credit rating.
Additionally, business owners should be extremely vigilant for signs of business credit fraud. Business credit fraud is far more prevalent than many business owners realize, and its effects can be devastating.
Both of these categories of credit reporting errors can be remedied, if caught in time, thereby mitigating or nullifying their damage on a company’s credit file. However, scant or nonexistent credit monitoring practices (which are woefully common), drastically decrease the odds that these errors will be promptly caught and disputed.
Therefore, credit monitoring is extremely important for all business owners, whether their enterprises are large or small.
How to Monitor Your Business’s Credit
Business credit reports can be obtained from all of the major business credit reporting agencies. The process is relatively straightforward, and the cost is minimal. Instructions on obtaining business credit reports can be found on the websites of all of the major credit bureaus.
Staying on Top of Your Business Credit
Some business people only check their business’s credit files once per year, or when they are applying for financing. A lot can happen to a credit rating in a year.
While obtaining the occasional business credit report is certainly better than not monitoring a business’s credit at all, many business owners find it advantageous to subscribe to credit monitoring services, such as CreditMonitor™ from Dun & Bradstreet, which can give business owners immediate updates whenever changes to their business’s credit file occur.
Having current information can serve as an early warning system for potential credit disasters. When one is cognizant of new developments on their business’s credit reports, disputes can be filed immediately, if incorrect information is listed.
Red flags, indicating potentially fraudulent activity, can be immediately investigated, preventing further damage. Finally, requests can be filed with vendors and creditors that are neglecting to report positive accounts.