What does a business credit bureau do?
Business credit bureaus are organizations that exist to evaluate the creditworthiness of a business entity, much like a consumer credit bureau. They do this by tracking current and historical financial information about a business and developing a credit score. Financial institutions may use business credit information to determine whether to loan money to businesses, and if so, how much.
What do the credit bureaus look at?
Business credit bureaus typically look at one or more of the following different types of data:
– Trade data: This is information about how a business relates to its vendors or trade partners; in particular, it reflects whether a business pays its bills.
– Traditional financing data: This is information about how a business uses traditional financial instruments, such as business lines of credit and business loans.
– Public record: This is information about a business that is available publicly via local, state, or federal agencies.
The three major business credit bureaus are Dun & Bradstreet, Equifax Small Business, and Experian Business, although other business credit bureaus exist. Each has their own unique way of considering a business’s credit risk and worthiness.
Dun & Bradstreet
Dun & Bradstreet focuses on delinquency risk by looking at whether a business pays its vendors. Businesses that consistently pay vendors on time have a higher score. Businesses that don’t rely heavily on vendor terms may find that the Dun & Bradstreet score fails to capture the reality of their creditworthiness.
Equifax Small Business
Equifax takes a different approach, using bank loan data collected by the Small Business Finance Exchange (SBFE) to create a business credit report. The Equifax business credit score reflects available credit, credit card payments, and small business loan payments.
Experian leverages a range of data, including vendor transaction records, bank loan data, trade data, and public record to gauge a business’s creditworthiness. The diversity of Experian’s sources means they can define credit risk whether a business relies on bank capital, trade credit, vendor terms, or some blend of the three.
Because of these different approaches, each bureau may evaluate the same business and generate a different picture of its creditworthiness.