Reports Confusing You? Take a Look Behind the Scenes – This is Business Credit Reporting Decoded
For business credit reporting, decoded, look no further! Our research ninjas went on a covert operation to find this out!
Your best option as a small business owner is to stay on top of your business credit reports from PAYDEX, Equifax, and Experian. There are three big credit reporting bureaus for companies and you really need to evaluate all three of them on a regular basis as they use moderately different yardsticks. Hence moving the needle for one can move the needle for the two others. But it’s maybe not as much.
Do not let your company credit scores slide, as you have to catch any mistakes fast as you can, and pinpoint anything which is pulling your scores down and afterwards take corrective action. You can obtain your reports easily and stay right on top of all three scores by following a few straightforward steps.
Credit Reporting Bureaus
There are three major credit reporting agencies and they all calculate your score a little differently. While many of the approaches are the same, the emphasis put on each variable varies. This is why you sometimes see differences in credit scores depending upon who’s doing the reporting. So long as there are no inaccuracies on the report, the scores should be comparable but they are not necessarily going to be identical.
Dun & Bradstreet (PAYDEX).
D & B makes a variety of proprietary calculations to attempt to establish if your business can settle its invoices. One of these is the Financial Stress Scores, which is an attempt to predict how probable it is your small business will fail in the next twelve months.
Business failure is specifically you get legal relief from your creditors. Typically, that’s bankruptcy. Or you cease all of your business operations without completely paying all of your creditors. Or you voluntarily withdraw from your company operations and therefore you leave delinquent obligations. Another failure is if you enter into business reorganization or receivership. Or you make a plan for the benefit of your creditors.
Dun & Bradstreet’s scores run from 1,001 to 1,875. A score of 1,001 exemplifies the highest possibility while an amount of 1,875 shows the lowest possibility of business failure.
The PAYDEX Score, on the other hand, serves as Dun & Bradstreet’s dollar-weighted evaluation of how your company has paid its bills during the past year. D & B bases this score on trade experiences as reported by various vendors. The D & B PAYDEX Score runs from 1 to 100. As you might expect, higher scores mean a better payment performance.
Dun & Bradstreet’s PAYDEX score of your business can end up being one of the primary reasons that your business obtains credit in any manner.
D & B provides Credit Signal, which is a way to monitor your credit score by having the reports come immediately to you, for a charge. You may discover the cost is well worth it to avoid the frustrations that can arise from letting this score slip, and to not need to create and manage the scheduling and reminders you might need to keep track of if you don’t use it.
Don’t wish to use Credit Signal? No worry, as you can get your PAYDEX report by way of D & B and, if necessary, you can speak with their Customer Service department. So this department exists as a part of Dun & Bradstreet itself.
In addition, in order to review your PAYDEX report, check out what D & B provides, which is a specimen report and even some higher level recommendations in how to interpret it.
Dun & Bradstreet’s PAYDEX score ranges from 0 to 100. A PAYDEX score has a basis in payment details which is either reported to the bureau or is on report to data-gathering businesses partnering with the CRA. D & B uses this information, along with a credit score and financial stress score, in order to recommend the amount of credit a lender should extend to your company.
To generate a PAYDEX number, you are required to file for a DUNS number by means of Dun & Bradstreet’s website. The number is free. Plus the agency will need to have reports of your payments with four or more vendors. Your small business’s PAYDEX score reveals if your payments are commonly made promptly or ahead of schedule. As you may expect, a higher number is better.
The scores break down as follows:
- 80-100: A low risk of late payments
- 50-79: A medium risk of late payments
- 49: A high risk of late payments
Your business’s credit score runs from 1 to 5. 1 is the best score. This matches your small business with other businesses with comparable payment histories. The score demonstrates how often those companies tend to pay timely.
This information can really help creditors to recognize your business’s standing. However, it does not really show all of the payment data from your company.
Financial Stress Score
The financial stress score also ranges from 1 to 5. This score matches your small business with other companies sharing comparable financial and business traits. These similarities are in areas such as size or amount of time in business.
This score shows how often those small businesses tend to pay on time. As before, 1 is the best score. This rating is a broader investigation of the business landscape, as opposed to an analysis of your company’s actual payment history.
A great PAYDEX score for your company is 80-100.
Equifax, another one of the major credit reporting agencies, furnishes a risk monitoring service. It is easier as it enables reports to come directly to you.
If you don’t wish to pay for regular reports, you can alternatively order your small business’s Equifax report. On top of that, if you want to dispute your small business’s Equifax report, you can do so by adhering to the guidelines on their site. You can learn to check your Equifax report by exploring an example of their reports.
A few of the more vital pieces of information Equifax considers are credit usage, public records, and how your company takes care of its financial and nonfinancial accounts.
Equifax shows three separate business determinations on its business credit reports. These are the Equifax payment index, your business’s credit risk score, and its business failure score.
Similar to the PAYDEX score, Equifax’s payment index, which is gauged on a scale of 100, shows how many of your small business’s payments were made on schedule. These include both information from creditors and vendors. However, it’s not designed to predict future activity, which is what the other two scores are for.
Credit Risk Score
Equifax’s credit risk score checks how likely it is your business will become severely delinquent on payments. Scores range from 101 to 992, and they assess:
- Available credit limit on revolving credit accounts, e. g. credit cards
- Your business size
- Evidence of any non-financial transactions (e. g. merchant invoices) which are late or were charged off for two or more billing cycles
- Amount of time since the opening of the oldest financial account
Business Failure Score
Finally, Equifax’s business failure score takes a look at the risk of your business shutting down. It runs from 1,000 to 1,600, reviewing these aspects:
- Total balance to total current credit limit average utilization in the prior three months
- How long since the opening of the earliest financial account
- Your business’s worst payment status on all trades in the last 24 months
- Proof of any non-financial transactions (e. g. merchant invoices) which are late or have been charged off for two or more billing cycles
For the credit risk and the business failure scores, a score of 0 means bankruptcy.
A great Equifax score for your business is as follows:
- Payment Index 0-10
- Credit Risk score 892-992
- Business Failure score 1400-1600
Keeping Scores High
Make sure to remove financial obligations as fast as possible and not go delinquent. Also, keep your small business’s credit utilization reasonable. That is, use below 30% of your total available credit for best results. Also, steer clear of overdue payments. By doing all of these, you should have a good Equifax score.
Experian, one more big credit reporting firm, also provides a means for receiving reports sent to you for a fee. As a result you can follow your Experian small business credit score here and the setup is effortless.
Having said that, if you would rather not get continuing reports (and purchase them), then you can order a separate Experian report for your small business on their website.
Likewise, if there are any troubles or errors, you can question any mistakes on your small business’s Experian report if you follow the directions on their web site. Find out about assessing your Experian report by reviewing a sampling Experian company credit report.
The same as Equifax and Dun & Bradstreet, Experian looks into not only the amount of credit you are making use of, but also how quickly your business is satisfying its financial obligations. Experian also looks at bankruptcies, and judgments or liens against your business, and any UCC filings. Experian also looks into any tax liens against your small business.
They also base a portion of their scoring on the length of time your company has operated and how long your company has had an Experian listing. The longer it is; the better.
Experian’s Credit Score report includes things like a business credit score plus other details, including account histories, payment trends, and public records. Experian commercial credit scores run the gamut from 1 to 100. In contrast to Dun & Bradstreet’s PAYDEX score and E
Equifax’s payment index, Experian considers a variety of factors, and not just payment histories.
The details which go into the calculation include:
- Lines of credit your small business has an application for in the last nine months
- New lines of credit you’ve begun in the past six months
- Your small business’s years in business
- Payment history in the prior twelve months
- Lines of credit in use in the previous six months
They also include:
- Collections totals in the last seven years
- Percent of available credit in use
- Amount of payments one – 30 days late, or 31 days or more overdue
- Number of non-net-30 lines of credit (that means the payment is due in fewer or greater than 30 days)
Generally, even companies that use credit sensibly will get a medium-low risk rating. As you might expect, older small businesses will have an easier time attaining a low-risk rating.
A decent Experian score for your small business is 76-100.
Takeaways for Business Credit Reporting Decoded
For all of the major credit reporting bureaus, while the details may be balanced a little differently, the bottom line is that they are all looking at how responsibly your small business uses credit.
Do you pay your bills on time or in advance, and in full? Then your score will be a lot better. Do you use so much credit that your company has problems paying it off promptly, and accounts go to collections? Then your score will be worse.
Judgments and liens will adversely affect your score; more responsible time in business will favorably affect it. But paying on time will boost your business credit scores faster and easier than just about anything else.
Business Credit Reporting Decoded and Monitoring
Frequently, it is a good idea to hand over a few dollars so as to be sure you receive your company credit reports consistently. It’s a lot less troublesome than have to remember to do this and you’ll probably consider these reports more meticulously, as they come at a price.
Keep on target and make use of the resources these credit reporting companies provide, and make your life easier. After all, you’ve already got enough on your plate.
As a result of the recent data breach, there are even more reasons to check your business and individual credit reports, and be vigilant about any problems you find. What frustrates you the most about business credit reporting – decoded?