There are so many options available to business owners today, they have almost unlimited freedom to choose how to structure and run their company. There are some cases where business owners do not have an option – it is either fact or fiction. There is not a lot of room for error when it comes to company credit scoring, you want to make sure to follow the rules. Owners will benefit from understanding the number of credit falsehood that are floating around, that way they can avoid making costly mistakes.
Myth #1: “Business and personal credit are reported the same.”
This is false. There are three major personal credit bureaus and three major business credit bureaus.
Personal credit: TransUnion, Experian, & Equifax.
Business credit: Dun & Bradstreet, Experian, & Equifax.
Despite the fact that business and consumer data is housed in the same bureaus, the reports are completely separate. The business credit reporting agencies use separate algorithms, score ranges, and data rules for reporting business and personal credit data. Consumer credit is also extensively regulated whereas commercial scores are not regulated at all and company reports can be purchased by anyone.
Myth #2: “I have business credit because I pay vendors and creditors.”
You could have history with 30-60 vendors or creditors, but that does not mean they will show on your credit profile. Not all creditors update to the business bureaus and without knowing the correct ones to use, a firm may be actively using payment terms but look like a shell of a company on credit. For a complete list of reporting vendors, you can speak with our business credit specialists.
Myth #3: “Paying on time will give your business the best scores.”
You absolutely want to make sure you are paying bills on time. However, if you are looking for the best business credit scores try to pay before terms. This might be unrealistic for many companies, but if you are able to pay early your business credit scores will show it.
Myth #4: “Hard inquiries do not hurt business credit scores.”
There is some misconception on the impact that inquiries have on business credit. When a company has an an extreme number of hard inquiries on business credit, it will factor into their scores and drop them.
It is true though, that hard inquiries have much less of an impact on business scores than they do on personal, the threshold for “excessive” inquiries are much less with consumer credit profiles.
Myth #5: “You do not really need business credit.”
Sometimes there is an option to offer a personal guarantee, but that does not mean that the creditor or vendor is not looking at your business credit. Since business credit is unregulated they do not have to disclose to you that they have reviewed your business credit. Existing and potential partners and accounts may reject your company or cancel their account with you after reviewing your business credit. If your business credit is poor or non-existent you present a higher risk since you may appear as if you can’t handle the account or a high risk of business failure. The partner or account is not obligated to tell you why they no longer want to work with you or decided to go with a competitor.
Being able to show strong business scores can also offer you higher limits, show you as a stronger company, and lower risk borrower.
Using your personal credit for your business can also become a problem when you need to use your personal credit for personal expenses. A mortgage lender or creditor might feel your debt load is too high to give you the loan you would like for a home or other personal credit needs. It is important to keep your personal and business credit separate.
Myth #6: “We have been in business a long time, so I must have great business credit.”
One major rule of credit – never assume. Assuming you have credit or have good credit is a dangerous decision. It is also such a common scenario: an owner goes for a loan and finds out that he/she A: doesn’t have any business credit or B: has very low scores due to negative information. Companies get denied and are forced to take higher interest financing or must wait several months before financing is an option. If the owner thought ahead of time and reviewed their credit, they would be able to resolve any issues before it hurt their chances at financing.
Be mindful of your credit
The best thing you can do is pay attention and have a forward-thinking attitude toward your business. Many companies do not realize their credit is an issue until it hurts them, and some choose to ignore it as long as possible. If you notice incorrect or negative information it’s in your favor to review it with a specialist and see what can be done to fix the business credit reports. Awareness of business credit has been growing over the years, but we still speak with owners who do not see it as a priority because they do not fully understand how much it can hurt them.