What are Business Credit Bureaus Looking For? A Beginner's Guide

Establishing and maintaining a solid business credit profile is crucial for securing loans, managing cash flow, and building a reputable business. However, understanding what business credit bureaus look for can seem like navigating a labyrinth.

How do you build business credit scores and keep them from dropping? Should you open a business bank account and separate business credit from personal credit?

At American Biz Credit, we offer valuable resources and services to guide you through the credit-building process. We'll shed some much-needed light on the essential details that business credit bureaus evaluate and how you can use this information to grow your business credit profile.

Understanding Business Credit Bureaus and Business Credit Scores

Business credit bureaus perform an essential role in the financial ecosystem by collecting and analyzing data on businesses’ creditworthiness. Unlike personal credit bureaus, which focus on individual credit scores, business credit bureaus use business credit to evaluate companies' financial health.

The primary bureaus include:

1. Dun & Bradstreet (sometimes called Dun Bradstreet or D&B)

2. Experian Business

3. Equifax Business

4. LexisNexis

Each of these credit agencies has their own set of criteria and scoring models, but they generally focus on several key factors when assessing your business credit score.

6 Factors Business Credit Bureaus Evaluate for Establishing Business Credit

According to a recent survey, just 42% of small businesses have their financing needs met. Getting financing for your business will be much easier when you take the necessary steps to grow your business credit scores.

Below are the top 6 factors to establish business credit and grow your business over time.

1. Payment History

One of the most critical aspects of your business credit profile is your payment history since it creates a clear image of what you prioritize in your business operations. A business credit bureau will assess how reliably your business pays its bills and debts.

An ongoing history of on-time payments reflects positively on your credit profile, showcasing responsible and committed business habits. On the other hand, a late payment history, defaults, or charge-offs can severely damage your credit score.

Tip: Regularly review your payment practices and ensure that you pay your invoices and bills on time. If you're struggling to keep up with multiple payments, try setting up reminders or automated payments to avoid missing your due dates.

2. Credit Utilization

Credit utilization refers to the current ratio of your credit balances to the total available credit limit. A high utilization ratio can signal financial distress and may negatively impact your business credit scores.

Conversely, a lower ratio suggests that your business manages its credit responsibly. This ratio is one detail you may notice is similar to personal credit score. Basically, the less you owe, and the more consistently you pay off your balance, the better you look to business credit reporting agencies.

Tip: Aim to keep your utilization below 30% of your total credit limit. If possible, pay off your credit balances in full each month to minimize utilization in your business credit reports.

3. Business Financial Statements

Did you know over 80% of small businesses fail because of cash flow issues? Crafting a consistent and traceable business credit history is one of the most dependable ways of building your business credit scores.

Business credit agencies analyze your financial statements to build business credit reports, including cash flow statements, income statements, and balance sheets. They look at profitability, liquidity, and overall financial stability. This information is vital for them to build trust in your business and how stable it will be over the years.

When you build business credit, you'll quickly find it leads to a positive domino effect that impacts every layer of your business. You build trust with bureaus, open new doors for financing, and meet your financial goals more easily.

Tip: Maintain accurate and up-to-date financial records. You can easily do this by setting a regular review schedule for your financial statements. You can also work with a financial advisor to ensure your statements reflect a healthy and stable business.

4. Business Size and Industry

Your business size and industry can also influence your business credit score and your ability to build business credit in the future. Larger businesses with stable revenues are often viewed as less risky compared to small businesses and smaller startups.

Additionally, industries with higher risk profiles may face more scrutiny. A high-risk industry is any industry that boasts a higher-than-average chance of regulatory or operational issues. A few examples of high risk industries include (but aren't limited to):

●     Alcohol

●     CBD

●     Pharmacies

●     Bail bonds

●     Supplements

Tip: If you are a startup or operate in a high-risk industry, focus on building a solid credit history and demonstrating financial stability to counterbalance these perceived risks. While you'll have to put in more effort than other business when building business credit, it'll be well worth the effort.

5. Credit Accounts and Tradelines

The number and types of credit accounts and trade lines your business maintains are also important. Bureaus assess whether you have a diverse range of credit accounts, including lines of credit, loans, and vendor accounts.

A tradeline is the term credit reporting agencies use for all the credit accounts listed on your report. A healthy mix of credit accounts with consistent payment history demonstrates responsible credit management. On the other hand, having few to no credit accounts makes it difficult for major business credit bureaus to analyze your efficiency as a business owner.

Tip: Establish and maintain various types of credit accounts, such as business credit cards, loans, and vendor credit. Ensure that all accounts are managed responsibly and contribute positively to your credit profile.

6. Public Records

Public records such as liens, bankruptcies, or judgments are significant red flags for business credit bureaus. Negative public records can have a substantial impact on your credit profile and may suggest financial instability.

A lien is any legal claim made by a creditor or lender against your assets or properties. This act is done in the event you can't pay off a debt. For example, if you took out a business loan to cover equipment expenses, your lender could potentially reclaim that property if you don't pay.

Tip: Address any outstanding legal issues or public records promptly. Work with legal and financial professionals to resolve disputes and avoid future negative records.

The Benefits of a Business Credit Card

A business credit card will make it much easier to separate your business credit from your personal credit. This credit card type often has higher payment limits than personal cards and provides different benefits.

For example, a personal credit card may offer cash back for daily essentials like food delivery or rideshare services. A business credit card may offer perks such as additional rewards from employee spending.

Alongside establishing a business credit card, you can build business credit with the aid of credit analysis agencies such as LexisNexis.

What is LexisNexis?

When it comes to dependable business credit and financial analysis, LexisNexis is a major player. LexisNexis Risk Solutions is a part of LexisNexis, a global provider of information and analytics.

Founded in 1973, LexisNexis offers a range of services beyond traditional legal and news information, such as data analytics, risk management, and business intelligence. Their comprehensive suite of data and analytical solutions helps businesses or financial institutions make informed decisions. Its core services include various sectors such as finance, insurance, legal, and government.

How Businesses Use LexisNexis

LexisNexis Risk Solutions plays a crucial role for helping build business credit. It's a valuable resource for businesses and financial institutions to assess credit risk, evaluating the financial stability of potential clients or partners.

LexisNexis can be a strategic advantage for businesses looking to start building business credit. Here are some ways businesses use LexisNexis:

●     Data Aggregation: LexisNexis compiles extensive data on businesses, including financial records, public filings, and historical data. This aggregation provides a comprehensive view of a business’s creditworthiness and risk profile.

●     Risk Assessment: Using sophisticated algorithms and data analytics, LexisNexis evaluates the risk associated with lending to or partnering with a business. This includes assessing the likelihood of default or fraud.

●     Identity Verification: LexisNexis helps verify businesses' identities. This tool is crucial for preventing fraud and ensuring that all parties involved in a business transaction are legitimate.

●     Compliance and Due Diligence: LexisNexis supports compliance efforts by providing tools for due diligence, anti-money laundering (AML) checks, and other regulatory requirements. This helps businesses meet legal and regulatory standards.

How To Use LexisNexis For Your Business Credit

You can also use LexisNexis as a business owner trying to build strong business credit. Below are a few functions they can help you with as you build your credit report:

●     Improve Creditworthiness: By maintaining accurate records and managing your business’s financial health, you can positively influence your credit profile. Regularly check your LexisNexis report to track your progress and address any areas that may need improvement.

●     Monitor Your Business Credit Profile: Regularly review your business credit report from LexisNexis to ensure that all information is accurate and up-to-date.

●     Enhance Fraud Prevention: You can implement LexisNexis fraud detection solutions to protect your business from fraudulent activities. This includes using identity verification tools and monitoring for suspicious transactions.

Whether you need to set up a business bank account or build business credit, we're here to help you create a fundable business.

American Biz Credit Will Help You Start Building Your Business Credit Score

Understanding what business credit agencies look for is essential for managing and improving your business credit profile. By focusing on factors such as payment history, utilization, financial statements, and credit accounts, you can build a strong credit score.

At American Biz Credit, we're happy to help you establish business credit and start meeting your financial goals. If you need more help establishing and managing your business credit report, check out our resources and services.