Reading a Business Credit Report

Each business credit bureau has their own way to represent the credit information they collect. While the layout might vary, or the names for different sections change, the principles outlined below are the same.

If you would like a free sample business credit report to follow along with, click here.

Step 1) Read the Company Profile

First thing first! Check the company profile to get an overview of the company you are looking at.

 

The company profile will contain information like:

• Company name


• Address


• Telephone and fax numbers


• Information on company principals

Don't spend too much time here. The most important thing is to be sure that the report you pulled is on the correct company. Match the company name and address to what you have on file. This is especially important if the company you are considering extending credit to has a generic name (like Smith Enterprises).

Step 2) Translate the Business Credit Scores & Credit Alerts

Towards the top of each business credit report, you will find an overview of how the company pays their bills.

Each business credit bureau has their own way to represent this overview but it will usually contain three important criteria: a credit rating, a business credit score, and a list of credit alerts.

Credit Rating

We're back to dreaded 74K-38. So what the heck does it mean?

74K = $74,000 - This is Company XYZ's average monthly balance over the past 6 months.

38 = 38 days to pay - Over the past 6 months, they pay on average, in 38 days.

To put this all together, a rating of 74K-38 would mean over the past 6 months, Company XYZ has had an average monthly outstanding balance of $74,000 and pays their bills in roughly 38 days.

Business Credit Score

Business credit scores give you an idea of a company's risk potential. They range from 0-100; the higher the better.

A sophisticated mathematical model calculates the scores based off multiple factors in each of these four areas:

1. Payment history


2. Current level of indebtedness


3. Current level of delinquencies


4. Length of credit history

Our business credit scores are grouped into three categories of risk:

Low Risk           > 87

Medium Risk     70 - 87

High Risk          < 70

Credit Alerts

A credit alert is an adverse piece of information. We show our credit alerts in bright red, hoping to literally alert credit professionals of their existence. Examples of credit alerts are:

• Collection accounts


• Judgment filed


• Fraud account


• Credit hold


• Returned check


• Phone disconnected

Alerts are never something you want to see when considering extending credit to a company. If you encounter a company with a credit alert on their report, proceed with caution.

Credit alerts, ratings and scores are useful in making a credit decision, but the majority of your time should be dedicated to the next two steps.

Step 3) Understand Month by Month Payment History

How is a company currently paying their bills? Are they slowing down on payments?

This is the start of the meat of a business credit report. Here you will see actual payment history that has been reported by businesses who are working with Company XYZ. This data is usually shown in the standard accounts receivable aging buckets (as seen below).

 

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Using January of 2014 as an example, 28 companies reported their credit experience with Company XYZ. Those 28 companies were paid by Company XYZ in roughly 43 days.

There are a few basic things to remember when analyzing this section:

1. The more money that is in the 1-30 day aging bucket the better.


2. The past 12 months of payment history are the most important. I am much more interested in how a company pays their bills now vs how they were paying 2-3 years ago.


3. You should be able to see how many companies have reported to your business credit bureau each month. If you do not have this transparency, there is no way to know whether the information you're viewing was reported 3 months ago or 3 years ago.

Step 4) Determine How Your Industry is Paid vs How All Industries are Paid

This is an extremely important section. Here you will see how Company XYZ pays different industries.

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When looking at industry specific payment history, there are two key considerations:

1. How is your industry being paid?  This is the best indication of how you will be paid.


2. How are all other industries being paid? An often overlooked area, but vital in determining credit worthiness.

Use the same logic as you did with numbers 1-3 in Step 3 above - majority of the bills in the 1-30 day aging bucket, information from the past 12 months, transparent data.

Step 5) Check the Number of Credit Inquiries

Similar to your personal credit report, business credit bureaus track the number of times a company's credit report has been pulled.

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A business credit report having multiple inquiries is not always cause for concern. In many instances, it can even be a postive sign. Here are a few examples:

Positive: a business is growing and is seeking new creditors.

Negative: a business has reached their credit limits and is seeking new creditors.

To determine whether inquiries are good or bad, review the company's days to pay. If these have been steadily increasing over the past few months, it could mean that they are having trouble paying their bills.

Step 6) Put it All Together

Consider all that you have learned about Company XYZ's credit worthiness. Does their credit report contain any red flags? How quickly can you expect to be paid? Can you wait that long?

A strong business credit report is one of the best weapons in a credit professional's arsenal. Understanding the information they contain will dramatically increase the likelihood of payment.

3 Quick Business Credit Report Red Flags to Avoid Bad Debt

3 Quick Business Credit Report Red Flags to Avoid Bad Debt

Extending credit is a requirement of doing business today. This necessity unfortunately opens you up to credit risk and the potential for bad debt.

While you may not avoid all credit risk, credit managers are able to greatly reduce their likelihood of a collection account or bad debt by pulling a business credit report.

Good credit managers are able to read a credit report to understand how a company has historically paid their bills. Great credit managers are able to use a company's credit report to predict how they can expect to be paid.

Within the report, are red flags that these great credit managers look for to avoid bad debt.

The 3 Bad Debt Red Flags on a Business Credit Report

Knowing how to read a business credit report is a requirement of any good business credit professional. It is the great ones that are able to use a report to avoid the likelihood of bad debt.

Here are 3 red flags that they look for to reduce their credit risk.

1) Low Business Credit Score

Business credit scores give you an idea of a company's risk potential. Each business credit bureau has their own scoring system, but the scores are usually calculated based on factors in the following four areas:

1. Payment history


2. Current level of indebtedness


3. Current level of delinquencies


4. Length of credit history

Each bureau will tell you what range of scores they consider high risk. On an Ansonia Business Credit Report, a risk score of 70 or lower is considered high risk.

A low score is not cause to deny a company credit on its own; use your judgment here. If the company has a low business credit score and other adverse information on their report (such as flags #2 and #3 below), you are probably better off working with them on cash terms.

2) Credit Alerts

Credit alerts are never a good sign. Ansonia's are displayed in bright red, hoping to literally "alert" our customers of the adverse information.

The severity of the credit alert can range greatly, from a bankruptcy to a slow pay.

While this is not a hard and fast rule, alerts can be grouped into two categories: approach with caution and approach with EXTREME caution (creative right?)

Approach with caution

• On cash terms


• Slow pay


• Phone disconnected


• Returned check

These are often early warning signs. For example, if a company is starting to have cash flow issues, you might see a "slow pay" or "on cash terms".

It is important to note that alerts in this category can sometimes be explained:

Slow pay - possibly a billing error

Phone disconnected - the company just moved offices

Regardless, approach these with caution; an alert is still an alert.

Approach with EXTREME caution

• Bankruptcy filed


• Fraud account


• Credit revoked


• Judgment filed


• Write-off


• Collection Account

Can you imagine if your company had one of the above alerts posted on your company credit report? These are big, bright, flashing red flags. They almost always indicate that a company is in trouble.

If one of the above alerts is present, cash terms are recommended over extending a credit line.

Credit alerts are never good. Regardless of its severity, an alert is always cause for further investigation. They are the cause of a lot of bad debt and write offs. When you see one, be careful.

See a full list of Ansonia's credit alerts here.

3) Increasing Days to Pay and an Abnormal Number of Credit Inquiries

One of the best early warning signs on a company's credit report is an increasing number in a company's days to pay. This increase is especially worrisome if it is coupled with an abnormal number of credit inquiries (the number of times a business credit report has been pulled).

What is an abnormal number? Look for a trend here. For example, a company has consistently had 4 inquiries on their credit report, and in the most recent two months has had 12 inquiries.

The combination can often signify that the company is in trouble. It often means that they are having trouble paying their current creditors (increase in days to pay) and are out looking for new creditors (abnormal number of credit inquiries).

Pulling a business credit report before extending a credit line can drastically decrease your credit risk. There are many things to consider on a report and these three are some of the worst in terms of risk potential. Avoid them and you can greatly reduce your chances of taking on bad debt.

Self Credit Repair

Self Credit Repair

Do you check your credit reports regularly? Credit reports are your credit references, as reported by your lenders. And, unfortunately, some lenders may accidentally report inaccurate information about your payment history. This is why it’s important for everyone to monitor their credit reports regularly and to dispute any information that is inaccurate. Today we wanted to show you a complete guide to do-it-yourself credit repair.

If you ever need to fix your credit report, here are the steps to take (and online apps you need) to get your credit report updated quickly – without paying hundreds or thousands of dollars to “credit repair” clinics.

Step 1: Request your free credit report from each credit bureau

The Fair and Accurate Credit Transactions Act (FACTA) entitles you to one free credit report each year from Experian, Equifax, and TransUnion and you can get this through AnnualCreditReport.com or by calling 1-877-322-8228.

In addition, you may request a free report directly from the credit reporting companies in certain circumstances. “Under the Fair Credit Reporting Act, consumers who receive public assistance, are unemployed (and seeking employment), or believe their credit report contains fraudulent data, are also entitled to a free report,” says Maxine Sweet, Vice President of Public Education at Experian.

CREDIT TIP: You can keep a close eye on the credit activity that is being reported for you simply by requesting a free credit report every four months. For example, get your Experian Report in January, Equifax in May, and TransUnion in September.

Step 2: Audit your credit reports carefully

“Remember that credit report information comes from the companies who have accounts with you. The goal is not just to fix your credit report, but to make sure that your information is correct with the source so that it will be reported correctly to everyone who checks your credit references. Reviewing your credit report can help you discover and resolve those inaccuracies,” says Sweet.

Each credit report differs in how information is presented, but here’s a breakdown of what you’ll typically find:

• Personal  Identification (addresses, employment history, name, social security number)


• Types of Accounts (revolving, installment, loans, joint accounts, credit limits, debts)


• Collections (if any accounts went to collections)


• Public Records (about  financial obligations)


• Consumer Statement (such as a statement of dispute if you do not agree with your lender about the status of your account)


• Hard Credit Inquiries (showing you applied for new credit or services)


• Soft Credit Inquiries (showing requests made by lenders who sent you an offer or that you requested your own report — soft inquiries are shown only to you)

Here’s a sample credit report [pdf] from Experian explaining the different parts of your report:

As you audit your credit report, pay close attention to these areas:

Missed Payments
Your payment history makes up the biggest part of your credit scores, so any past-due amounts or late payments will damage your scores (especially missed mortgage payments). If you have any missed payments on your report that are incorrect, make sure to dispute the inaccuracy because it can make a big impact on your scores. You may need to talk to your lender to find out why your records do not agree about the payment.

Length of Time Using Credit (Depth of Credit)
Many people don’t realize that older credit accounts with good credit history actually help you. It shows you have managed credit well for a significant amount of time. Consider the pros of cons before you close any accounts (if they are tempting you to overspend).

The Variety of Accounts
Having a mix of different credit accounts can help you because it shows you know how to manage different types of credit. Managing a car loan with a fixed monthly payment is very different from managing a credit card where you control the amount you owe and pay each month.

Recent Credit Accounts
If you’ve recently taken out a loan or credit card, you’ll want to make sure it’s appearing on your credit report. New credit accounts can signal risk (and could lower your scores at first), but the added credit mix and consistent payment history will likely improve your scores over time.

Amount of Credit
It’s important to make sure you’re using less than 30% of your available credit on revolving credit accounts. For example, if you have a $10,000 credit limit on a credit card – you never want to carry a balance over $3,000 because it can hurt your credit scores. The lower, the better. 

So while auditing your credit report, make sure the credit limit assigned on your revolving accounts are accurate – and the amount owed is under 30% of your credit limit. If not, consider requesting a higher credit limit on that credit card to lower your utilization rate. Even better, pay down your balances so that you are only charging what you can pay in full each month.

CREDIT TIP: If you notice any fraud, you can set a fraud alert right away which cautions lenders to verify your identity before opening any new credit accounts. It’s simple to set-up fraud alerts by using  these  direct links to Experian, Equifax, and TransUnion. “You can also freeze your credit reports for a small fee to prevent new creditors from accessing your report. However, freezing your credit reports means you will have to temporarily unfreeze them when you need services, which can be inconvenient,” says Sweet.

Step 3: Dispute incorrect data

There is no cost to dispute any items on your credit report. And you can dispute incorrect information in a variety of ways. Always start with a current copy of your credit report. Then, you can call the phone number on your credit report or use one of the following online apps from one of the following credit bureaus:

Screenshot of the Experian Credit Dispute App

Screenshot of the Equifax Credit Dispute App

Screenshot of the TransUnion Credit Dispute App

“In most cases, you only need to ask one credit bureau to dispute an account on your behalf .. If your lender responds to a disputed item with a correction, they are required to report that corrected information to any credit reporting company to which they provide their data,” according to Sweet.

Some people think that disputing information on your credit report can hurt your credit scores, but that is not true. Disputes are not reported in your history and are not scored.  Disputing inaccurate information is exactly what you should do to help ensure your credit history is correct.  Another myth is that disputing information you believe is inaccurate will cause info to remain longer on your credit. Information is deleted based on the dates of missed payments or when the account was closed, for example.

CREDIT TIP: If you cannot resolve a disputed item with your lender, you may add a “Statement of Dispute” to your credit report explaining  why the information is incorrect. The statement you write must be under 100 words, and should address why the info the lender is reporting is incorrect. For example, “Never missed any payments with [Lender Name].”  This statement will remain on your report for two years and visible to anyone who has permission to review your report.

Step 4: Wait 30 days for removal or response from creditor

When you dispute an item on your report, the credit bureau will contact the creditor to respond to the dispute. If no response is received within 30-45 days, the credit bureau will remove the account or correct the negative information and notify you of the results.  “If you disagree with the results, you may need to contact the creditor directly and provide additional documentation if your records do not agree with theirs,” says Sweet.

CREDIT TIP: If you need additional help with debt or your credit, avoid going to a “credit repair clinic,” which could cost you hundreds (if not thousands) of dollars. Instead, seek out an accredited non-profit credit counseling agency. And, if you know of a great non-profit credit counseling agency, please share in the comments.

Step 5: Request a new credit report from each credit agency

After an item is corrected with one credit reporting company, wait three or four weeks before requesting a fresh credit report from the other credit bureaus. You want to give the creditor some time to report the corrected data. Getting a fresh report will ensure that the item has been removed or updated. You may also choose to purchase a  credit score to see if your risk level has improved.

A Perfect Credit Score – Is it worth?

A Perfect Credit Score:

Your credit score can mean the distinction between being declined or accepted for credit and a high or low interest rate. A good score can help you to be eligible for a residence lease and even help you to get resources linked without a deposit.

What is it?

Your credit score contains a 3-digit number produced by statistical criteria using details in your credit score. It is developed to predict threat, particularly, the possibility that you will become seriously delinquent on your credit responsibilities in the 2 years after scoring.

There’re several different credit-scoring models present, but there is one that rules the market: the FICO credit score. As per the myFICO.com statement, the customer site for the FICO score developer, “90 % of all banking organizations in the U.S. use FICO scoring in their decision-making procedure.”

FICO score varied from 300-850, where a greater variety indicates reduced threat.  A customer has 3 FICO scores, one for each credit report offered by the 3 significant credit bureaus: Experian, TransUnion and Equifax. Regrettably, customers presently have access to only their TransUnion and Equifax FICO scores. Experian ended its contract with myFICO.com during 2009.

If your objective is to enhance your score to the level where you specify for the best interest rates, financial perks, offers, and advantages, 760 is your miracle number.

In an excellent piece at LearnVest, Jacqui Kenyon explains her own pursuit to enhance her credit score, regularly verifying it, remodelling her investing and saving habits every time she discovered new guidelines or discovered a little more about the strange magical arithmetic FICO uses to figure out it. She was attempting for a perfect 850, but easily discovered that there’s really little point:

Anthony Sprauve, director of PR at FICO, states, “If you have a FICO score above 760 then you are going to get the best rates and possibilities”, the statistics organization whose credit score ratings are most frequently used to figure out a borrower’s stability. “While it’s awesome to draw a bead on, you really do not need to,” he says.

Bingham stated that a perfect 850 may not even be possible.

“The maximum I have ever seen was an 847,” says Bingham, who monitored 1,500 credit scores for many decades while exploring scoring techniques. Sprauve says that when FICO investigates credit scores, they do so in variety, so even if someone did have an 850, they would never even see it.

So the significance of the story is that while there is nothing incorrect with trying to increase your credit score specifically if you are in a place where your previous investing habits or old financial debt have left your credit a little missing, the best advantages of a higher score come around 760, and it’s a much more obtainable number than 850. Sure, greater scoring get the best rates on credit cards, loans, financing and more, but you do not need to pursuit excellence to be able to obtain those advantages.

Don’t forget that your score is measured in variety, so if something happens to make your score fall from 760, your advantages may fall down a level. Still, enhancing your score is beneficial, but it’s nothing to get stuck over. As we have described, the people with the best scores are the ones who perspective credit as a device they’ve management over, not a power they have to fight.