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Credit reports: facts and myths

Who has access to a business' scores? Is personal information included? The answers may surprise you.

December 06, 2007|Cyndia Zwahlen | Special to The Times

How much do you know about business credit reporting in general and your small firm's credit report and score in particular?

Take this true-or-false quiz to gauge your business credit intelligence. You may be surprised by what you learn.

If you're in business, you have a commercial credit score.

False.

Unless you have bankers or vendors that report your business' payment history to a credit reporting company, you may not have a business credit file. The credit reporting companies also need what they call demographic information to generate credit reports and scores. That includes how long the business has been around, the number of employees and revenue. Some credit reporting companies rely on self-reported information. Others get the information from third parties. Some combine data from both sources.

To build your business credit history, you can ask your business creditors to report your payment history. Some credit reporting agencies will share with you the names of potential suppliers that report to them.

A sole proprietorship or business partnership will not have a business credit report or score separate from the principals' personal credit reports and scores.

False.

Although sole proprietors and partners are not considered separate legal entities from their businesses, they can build a separate business credit history by, for example, opening a credit card account in the name of their business and paying on time. Some credit reporting companies also offer a business credit report and score based on a look at a blend of the principal's consumer credit and the company's business credit history. The information is analyzed based on how it relates to the risk that the business will be seriously delinquent on its bills.

Access to my business credit report is restricted.

False.

Under the Fair Credit Reporting Act, a personal credit report is accessible only to those with so-called permissible purpose. Your business credit report is not provided that protection. It generally is available to any qualified entity that wants to buy it. Each reporting company has its own rules governing to whom it will sell a business credit report.

Business credit scores are calculated on a different scale from personal credit scores.

True.

And each business credit reporting company has its own scale. The Equifax Small Business Credit Risk Score for Suppliers, for example, is figured on a scale of 101 to 816, with a lower score indicating a higher risk for serious delinquency. Experian's business credit scores are figured on a 100-point scale. The most commonly used personal credit score, the FICO score (for Fair Isaac Corp., which developed the scoring technique), ranges from 300 to 850, with 680 or higher a very good score.

My business credit score includes my personal credit information.

False.

Credit reporting companies are prevented by law from mingling personal and business credit information on a single report. Many, though, do offer reports and scores based on data from the consumer and business sides of your financial affairs.

I should request a copy of my business credit report at least once a year, just as I do for my personal credit report, to check for errors or identity theft. After all, it's free.

True and false.

Though it is important to check your business credit report regularly, you'll have to pay to do so. The cost depends upon the credit reporting bureau you are dealing with and the amount of detail you want. Federal law requires credit reporting firms to give one free personal credit report a year to each individual who asks for one.

My small business has a single business credit score.

False.

There are three major credit reporting companies -- Dun & Bradstreet, Equifax and Experian. Each may compile its own report and score on your small business. There are other, smaller credit reporting firms, some of which specialize in certain industries, such as shipping.

If I'm not in the market for a business loan, I don't need to worry about my business credit report or score.

False.

Even more so than a consumer, a small business can have a wide variety of potential parties interested in its credit strength. In addition to a traditional bank, there may be new and existing suppliers and customers, landlords, equipment lessors, business partners and even employees who want to know about your small firm's credit standing and the relevant public filings that credit reports often include, such as bankruptcy status, liens and judgments. Most of their decisions will have a direct effect on your bottom line. You'll get the loan or not. You'll pay a lower or higher interest rate. Your vendor will give you more or less time to pay.

There's no harm in using my personal credit score to apply for business credit.

False.

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