Time to Review Your Company's Credit Report

With lenders clamping down, small business owners need to ensure that credit report errors don't keep them from getting loans or trade credit

By John Tozzi

Do you know what's in your company's business credit report? If you've ever had a line of credit with a bank or supplier or a lien or court judgment against your company, a credit file on your business may exist, even if you've never seen it.

Like personal credit reports used to evaluate consumer borrowers, business credit reports collect financial information and payment histories to help banks and vendors decide whether a company is likely to default. Some creditors may give more weight to factors such as your financial statements and trade references; but for others, the credit report is the first thing they look at.

Accuracy Question

A credit report, however, might be inaccurate, making your company appear riskier than it actually is. "Commercial credit reports, more so than a consumer credit report, can be somewhat incomplete," says Dan Meder, vice-president of marketing and product development for Experian. While there's little data available on the accuracy of business credit reports, a 2004 study by nonprofit public advocacy organization U.S. Public Interest Research Group of about 200 consumer credit reports found that a quarter contained a serious error and 79% had some sort of mistake.

Three main companies compile most of the business credit reports for small businesses in the U.S.: Dun & Bradstreet (DNB), which reports exclusively on businesses, and credit bureaus Experian and Equifax (EFX), which also compile consumer credit reports. These companies collect information on private companies from trade partners and creditors and from public records such as incorporation documents, liens, bankruptcy filings, and judgments. Anyone can purchase the reports these bureaus generate on your business, with basic reports starting at around $50.

If there are errors on your report, such as accounts wrongly listed as delinquent, you should contact the bureaus. The problem may not be the bureau's fault, but rather a mistake from a third party reporting data to them. "I think it is important for a small business owner to understand what's being reported about them," says Meder. "At Experian, we're just reporting what's being reported to us."

The Value of Trade References

Even if your report is inaccurate, you may not need to correct it to get credit, depending on your suppliers and lenders, says Doug Palmer, chief executive of Bethesda (Md.) accounting firm Palmer Financial. While it helps to have a clean credit file, it's more important to have trade references, solid financial statements, and a bank that will vouch for your company, he says. Palmer is skeptical of the value of D&B reports, and he advises clients not to purchase services to build or update their credit files unless specific vendors require the information. "You'll find that companies' financials really speak for themselves a lot more," he says. (Dun & Bradstreet declined to comment for this article, citing a quiet period before reporting earnings.)