At Nav we’ve helped over 160,000 small business owners access and review their personal and business credit reports. Most of them are excited to see their business credit information, often for the first time. But there are some differences between business and personal credit reports that can sometimes leave them confused or frustrated.
Here are three of them, and tips about what you can do if you encounter these challenges.
1. Creditors aren’t named
Small business owners may be surprised when they get their business credit reports to discover that their accounts aren’t listed by creditor name and account number as they are on their personal credit reports. Instead of listing each account under the creditor’s name, such as “XYZ Bank,” they are usually listed under type of account, such as credit card, printing, or computer, for example. This is generally an industry-wide practice, and not specific to a particular credit bureau.
What this means: You may have to be a bit of a detective when reviewing your business credit reports, especially if you have multiple accounts reporting. Looking at factors such as highest balance, recent balance, etc., may help you figure out which account belongs to which creditor.
2. Credit limits aren’t reported
Instead of a credit limit, an account will usually list the recent highest balance. That information will then be used instead of the credit limit to calculate a “utilization” or “debt usage” ratio, if that information is included in a credit score calculation. Utilization compares the balance to the credit limit, or in this case, the highest credit amount.
What this means: If you have credit but use it sparingly, this could count against you. For example, if the highest amount of credit you have used is $100, then even a small balance of $75 would make you appear “maxed out.” Check your credit reports, and if your creditor reports highest credit instead of a credit limit, making a large purchase to raise that highest credit amount (and paying it off quickly to minimize interest costs) could help your business credit scores in the long run.
3. Payment history is summarized
If you’ve reviewed your personal credit reports and scores, you’ve no doubt seen a month-by-month breakdown of your payment history on most, if not all, accounts. On business credit reports, you’re likely to see a summary that shows the percentage of on-time payments versus the percentage paid 30 days late, 90 days late, etc. You may also see a term called “Days Beyond Terms” which describes how many days beyond the invoice date you paid an account.
What this means: Because there is no month-by-month breakdown, you may not know when a late payment occurred. If you think the information is incorrect, you may want to go directly to the creditor or vendor reporting it and ask them to verify their records to make sure the account is reporting correctly. Paying on time (or even early) going forward is a great way to improve your payment history, and can go a long way toward building strong business credit.
Get to know your credit report
While the differences in business versus personal credit reports may initially be frustrating, it’s worthwhile to invest time familiarizing yourself with yours. Lenders, vendors, insurance companies, and even prospective clients or business partners may check your credit reports, so you’ll want to make sure they are both accurate and as strong as possible.
Additionally, a survey of small business owners by Nav found that those who understood their business credit were 41% more likely to get approved for a small business loan. Put in the time now to understand yours, and you can reap the benefits in the future!
