Business Credit Reports vs. Consumer Credit Reports: What’s the Difference?

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Business Credit Reports vs. Consumer Credit Reports: What’s the Difference?

Business Credit Reports vs. Consumer Credit Reports: An Overview

Firm and consumer credit reports serve similar functions: informing potential lenders about your creditworthiness and allowing them to evaluate the risk they are taking if they grant you a loan or credit card, or if they provide “buy now, pay later” conditions to you or your business. They vary in terms of the information they carry and how it is utilized.

Business credit reports provide information on the firm, such as ownership, subsidiaries, corporate finances, risk ratings, and any liens or bankruptcies. The credit history of a company starts when it is formed and given a federal tax identification number. Unlike consumer credit reports, corporate credit reports are open to the public and available to anybody.

Consumer credit reports only include information on an individual’s credit accounts (loans and credit cards), closed accounts, overdue accounts, and any liens or bankruptcies.

Key Takeaways

  • A business credit report is specific to a firm and includes all relevant information such as corporate finances, liens, subsidiaries, and vendor payment data.
  • Because a company’s business credit report is public information, anybody may see it.
  • Consumer credit reports are solely concerned with an individual’s personal credit and include information such as loans, credit cards, overdue accounts, and liens.
  • Consumer credit reports may be viewed exclusively by the person and for a “permissible reason.”
  • Equifax, Experian, and Dun & Bradstreet are the three major credit agencies providing business credit reports. Experian, TransUnion, and Equifax are the three companies that provide consumer credit reports.

Business Credit Reports

Businesses must be more aggressive than consumers in establishing their own credit records so that they may acquire credit apart from the company owner’s personal credit. Corporation credit agencies may begin monitoring trade credit and other credit transactions after an incorporated or LLC business receives a federal tax identification number.

  A Brief History Of Credit Rating Agencies

Trade credit transactions take place when a supplier allows a company to purchase now and pay later. Trade credit payments are reported to company credit agencies.

A business credit report includes the following information:

  • Information about the company’s history, including ownership and subsidiaries
  • Company financial information
  • History of banking, commerce, and collecting
  • Bankruptcies, judgements, and liens
  • Risk scores

Equifax, Experian, and Dun & Bradstreet, as well as FICO, calculate company credit ratings based on the information given above. Unlike consumer credit scores, which are scored using common methodologies and algorithms, each of the commercial credit agencies utilizes entirely separate methods for rating business credit risk, with varying score ranges.

For example, Dun & Bradstreet’s PAYDEX focuses on how quickly a company pays its invoices; this is essential information for vendors and suppliers when extending trade terms. Experian’s Intelliscore Plus reflects on the likelihood of your company falling significantly behind on its invoices in the following 12 months, something lenders want to know. 12

Business credit reports must be acquired from credit agencies and, unlike consumer credit reports, are public, meaning that anybody who pays the charge may see them. For companies, there is no nationally required free yearly business credit report. Each agency will charge you for a copy of your report, while some free information is accessible from websites such as CreditSignal.com (for Dun & Bradstreet) and Nav.com.

Consumer Credit Reports

When you apply for credit for the first time, the three main credit bureaus—Experian, TransUnion, and Equifax—start building a credit profile based on your credit actions. Only those with a “permissible purpose,” as defined by the Fair Credit Reporting Act, are permitted to seek your credit report. 3 When they do, the bureaus provide a report that contains the following information:

  • A listing of all of your credit accounts, including loans and credit cards
  • Each account’s outstanding amount and current monthly payment
  • An indicator of whether the accounts are current and correctly paid, or if they are overdue, as shown by the number of days past due.
  • A list of closed accounts
  • Liens, judgements, and bankruptcies are all public documents.
  • Data on previous and present employers
  • Residential address history
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The information is analyzed by credit bureaus to establish a credit score, which lenders use to determine your creditworthiness. Although your credit score may range significantly amongst the three credit bureaus, all three typically employ the Fair Isaac Corporation’s standard techniques and algorithms to create your FICO score.

Consumers are legally entitled to one free credit report per year from each of the credit agencies. (You may get it through the official website, annualcreditreport.com.) The credit score is independent from the credit report and must be acquired separately.

Special Considerations

It is critical for company owners to have distinct credit profiles for their companies. Lenders depend on the business owner’s personal credit profile to determine credit risk in the absence of a company credit profile, which might restrict the firm’s ability to borrow what it requires.

Even though the firm is a distinct legal entity, the owner is personally accountable for any loan commitments until it creates a business credit profile. It is uncommon for a new firm to be able to get a loan without the business owner’s written personal guarantee.

Business owners must take active actions to create and grow their business credit profiles as early as feasible in their development.

  • Form a distinct legal entity for the company, such as a S Corp, partnership, or LLC.
  • Keep separate corporate and personal financial accounts and records.
  • Apply for a Dun & Bradstreet D-U-N-S number. (This will create your file with that bureau.) 4
  • Set up trade credit accounts with your merchants and suppliers.
  • Get a company credit card; maybe start with a gas card. If a bank provides a business credit card, ensure that payments are reported to the business credit agencies.
  • Make all payments on time.
  • Order business credit reports on a regular basis to ensure that they are up to current.
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Business credit reports may also be quite beneficial as management tools. Each business credit bureau provides premium reporting services that may give in-depth research for credit risk management and business planning. A solid business credit score implies that your company will be able to get the finance it needs to expand at lower interest rates, better payment terms from suppliers, and cheaper rates on certain commercial insurance.

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