Business Credit

Understanding Commercial Credit Scores & Reports

The concept of creditworthiness dates 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 get approval from the business owner. This leaves businesses 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 impact 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.