Understanding Commercial Credit Scores & Reports
The concept of creditworthiness dates back to the early 1800s, ever since there have been lenders there has been a need to assess a borrower’s risk level. It was not until the 1970’s, when the Fair Credit Reporting Act (FCRA) was passed, that borrowers were protected from lender bias having an impact on their likelihood of loan approval and rates. Consumers are offered a variety of protections and security under the FCRA of 1970 and its amendments in the 1990’s and 2003, but businesses and corporations were left out of the FCRA. To this day, businesses are not protected under the FCRA and business credit is highly unregulated. Therefore, business owners can experience limited success and stunted growth if business credit profiles, scores, and indexes go unmanaged.
Unlike consumer credit, anyone can pull business credit reports for a small fee and they do not have to provide notice or approval from the business owner(s). This leaves businesses naked, open to scrutiny and judgment; decisions can be made about them by partners, lenders, vendors, or by anyone, even competitors, looking to gain an edge. These decisions can have a direct result on future success or even cause failure.
When properly managed, maintained, and understood, business credit has the power to leverage profitable opportunities for businesses of all sizes and save a fortune in fees and interest. If reports are not monitored and built with the right kinds of accounts, a business may find itself unable to nurture new partnerships, retain old accounts, acquire good net payment terms with vendors, and/or secure affordable financing, loans, lines, and leases.
The Bureaus – Dun & Bradstreet, Experian, & Equifax
Dun & Bradstreet, Experian, and Equifax have roots that date back to before the turn of the century. All three maintain a global database, separate from one another, that contains information and data on millions of businesses and consumers.
- Dun & Bradstreet can be traced back to 1841 when Lewis Tappen founded The Mercantile Agency in response to the recognized need for a centralized credit reporting system. The Dun & Bradstreet that we know today was created during a merger of 1933 between the former Mercantile Agency, R.G. Dun & Company, and its competitor The John M. Bradstreet Company. Unlike the other two bureaus, D&B only reports commercial data – they do not offer consumer credit reports. Today they operate and maintain information on more than 235 million companies across 200 countries.
- Experian has roots that reach back to 1826 London when shopkeepers began exchanging data on customers who failed to pay back their debt. Experian, as we know it today, was not formed until 1996 when the UK – Great Universal Stores (GUS) and the US – TRW merged. Today they have offices in Ireland, United Kingdom, and the United States with over 17,000 employees.
- Equifax was founded in 1899 as the Retail Credit Company, at that time they handled reporting for insurance agencies by giving them data on people applying for new policies. They changed their name to Equifax in 1975 in order to freshen their image because of the scrutiny they experienced between the 1960’s and 1970’s for openly selling consumer information. Today they maintain and own information on over 800 million consumers and more than 88 million businesses worldwide.
According to D&B: Their commercial credit scores “…predict the likelihood of a business paying its bills in a severely delinquent manner (91 days or more past terms), obtaining legal relief from its creditors or ceasing operations without paying all creditors in full over the next 12 months. D&B defines severe delinquency as a business with at least 10% of its payments 91 days or more past due, based on the information in D&B’s commercial database. The score ranges from 101 to 670, where 101 represents the highest probability and 670 represents the lowest possibility of delinquency.“
- Risk Class – “Separates businesses into five distinct risk groups where 1 represents businesses that have the lowest probability of severe delinquency, and 5 represents businesses with the highest probability. The credit score class allows you to quickly segment new and existing accounts according to risk to determine appropriate marketing or credit policies.”
- Percentile Norms – “Represent the average score and percentile for all scorable companies with similar demographics, and they can be used to benchmark where the company stands relative to the norm for its peer group.”
- Distribution of Commercial Credit Score Risk Class
“The table below illustrates the distribution of the Commercial Credit Score Class in the Dun & Bradstreet Business Universe. In addition, this table displays their associated Percentile Ranking and Score, along with the Delinquency Rate.”
What to Look for In a Business Credit Repair / Building Company?
They’re called business credit “specialists” or “experts” for a reason and you should turn to them before trying to solve your credit issues solo. Many business owners only turn to business credit experts when they have become desperate for a solution; maybe they were denied a business loan, their revolving credit limit was decreased, they were denied a government bid, or are having trouble landing that appointment with a major account. Whatever it is, many companies seek out help after the damage is already done and they are now being faced with the repercussions.
The process usually works like this: you’ll be asked to provide copies of your reports, there will be an initial consultation, where every detail of the business credit reports will be analyzed; information about their method, strategy, and timeline will be provided during this conversation. You should be set up with an account manager who will be your direct contact person – any company you work with should be transparent in nature, honest, and communicate with your team.
Look for a company that has a team of FICO Certified Professional credit negotiators who specialize in both personal and business credit repair, building, and monitoring, they have an in-depth understanding of the business credit reporting agencies. We use intelligence, laws, experience, and a hands-on approach to repair, build, manage, and monitor all three profiles. Each business credit report consists of a variety of scores and indexes that only the most seasoned professionals know how to fix, change, correct, and delete.
Businesses need to be more proactive – just because credit is not affecting you today does not mean it should be pushed off until tomorrow. Most businesses have a plan for eventual expansion and will need a strong and established business credit profile on their side in order to gain access to loans, leases, lines of credit, new partnerships/accounts, and government bids. Pushing your business credit down on your ‘to-do list’ is only going to further frustration when it comes time for growth.
Each business credit reports includes scores and indexes that are used to assess and predict a businesses financial standing and payment habits.
According to D&B: “The Commercial Credit Score (CCS) predicts the likelihood of a business paying its bills in a severely delinquent manner (91 days or more past terms), obtaining legal relief from its creditors or ceasing operations without paying all creditors in full over the next 12 months. D&B defines severe delinquency as a business with at least 10% of its payments 91 days or more past due, based on the information in D&B’s commercial database. The score ranges from 101 to 670, where 101 represents the highest probability and 670 represents the lowest possibility of delinquency.“
North Shore Advisory has 30 years of experience working to fix, correct, and monitor business credit profiles from all three of the major credit bureaus. These definitions were pulled from the Dun & Bradstreet website.