How to Improve Your Construction Business Credit Rating
While personal credit ratings and FICO scores are kept up automatically — like scoreboards at sporting events — business credit scores are more hands-on and reserved for the proactive and savvy businessperson. There are certain key points about business credit scores and credit ratings that can increase your awareness and your ability to access financial markets.
Service to the Public... or to Businesses?
Here is the difference between personal and business credit scores.
Personal. Consumer credit agencies collect lots of financial and demographic information about you and other individuals. They then report this extensive personal credit information to lenders, hiring managers, real estate brokers or anyone else you choose to do business with personally.
Business. On the other hand, business credit information may not be accumulating about your firm automatically. This fact might be standing in the way of your business getting sufficient loans, credit lines, and account limits with suppliers. This fact might also be hurting your chances of getting good interest rates.
There is something you can do about it.
Business credit is more proactive than personal credit. In fact, in more ways than you might think, you control the information that business credit agencies like Dun & Bradstreet collect and distribute.
How Business Credit Works
Dun & Bradstreet is the only credit bureau devoted to accumulating and distributing credit information only about businesses. All businesses' credit scores and credit reports are public domain, so firms and banks don't have to ask your permission to pull your business credit file.
However, your business credit file may not exist or may not be helping you.
For example, if a bank or real estate professional tries to pull your business credit, and the file is incomplete, then the professional will rely more heavily on your personal credit.
First Steps to Better Business Credit
Dun & Bradstreet issues DUNS numbers to businesses similar to how the Social Security Administration issues Social Security numbers to individuals. This is a free service. The first step to better business credit is to make sure your company has a DUNS number. Although the DUNS number application is free, it can take up to 90 days to receive a number because Dun & Bradstreet will verify your name, address and other specifics about your business before establishing a credit file.
Once a credit file and DUNS number is established in your business name, you can review your own business' credit file for free and even make changes to your demographics for free. If you are careful about it, you can get started without laying any money down whatsoever. You can even put in different business events such as new director appointments, changes in legal entity status, or a new construction license achieved or granted to your firm.
The banking section and the payment experience section of your business credit report are two examples of areas you cannot change. So how you pay your vendors, suppliers and subcontractors is something D&B will update outside of your direct control. But remember that business credit reporting agencies are in existence for you, the businessman or woman — not for the banks or supply houses who look you up.
To really get noticed, you must activate your credit report by paying about five hundred dollars to Dun & Bradstreet. This will give you D&B's "verified" status and is the only fee that is actually required to get started making full use of your business credit.
Making Full Use of Business Credit
There are a relatively small number of companies that automatically report to D&B about your business' financial transactions (hence the proactive nature of business credit). Therefore, to establish and improve your business credit, you must put forth a concerted effort.
Once you've received a DUNS number and update all your business information such as location, structure, and major business events your credit file is like an empty boat that we are trying to set out on the open ocean. You have to fill the boat, or it doesn't make sense to set it out to sea.
Even if you have paid the $500 to activate your credit file, it will only have limited usefulness without some reporting of your company's trade references. (Credit references are not created automatically for businesses like they are for individuals.)
For a fee, you can add trade references to your credit file to create a positive credit score. This might seem like you are paying to "be seen in a good light," but Dun & Bradstreet is very thorough with investigating every credit reference you provide to them.
Yes, you pick and choose who gets reflected in your credit report, but D&B will ask your trade references to rate your firm's dealings with them confidentially, and then D&B will calculate your firm's business credit rating based on that.