The Massive Misunderstanding That Is Keeping You from Building Business Credit

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If you have ever asked yourself the question “Why do I not have business credit even though I pay back my suppliers, lenders, and service providers on time?”, take a seat. This one’s for you.

A large majority of the ever popular “Here’s How You Establish Business Credit” articles quickly gloss over a massive truth that makes a huge impact on your ability to build business credit.

“What is this massive truth?”, you ask.

Well… before I slam that on the table, you need to thoroughly understand one severely important prerequisite concept in business credit that a large majority of business professionals do not understand.

I’m not over exaggerating here — even seasoned credit professionals do not understand what I’m about to tell you.


Severely Important Prerequisite Concept

Experian, Dun & Bradstreet, and Equifax are the 3 main business credit bureaus that gather information about how well you pay back debt to creditors, and they rarely have the exact same information.

Please take the time to digest the sentence above. Read it multiple times if necessary, because it is imperative that you understand it before I explain why this occurs and how this affects your business’ credit.


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The Massive Misunderstanding Part 1

Experian, Dun & Bradstreet, and Equifax rarely have the exact same information about how well you pay your creditors because…

Businesses are not required to report how well you pay them back to Experian, Dun & Bradstreet, or Equifax, and if they do report this information, it’s generally only to 1 of the 3.

Again, read over the above sentence if necessary.

With that said, if you pay back your creditors on time and you see that you still don’t have business credit, 1 of 3 things is happening.

  1. Your creditors are not reporting how well you pay them back to any of the business credit bureaus.
  2. Your creditors are reporting, but when you pulled a business credit report on your own business, you pulled a report from a bureau that your existing creditors are not reporting to.
  3. If your existing creditors are reporting to the bureaus, it may just be too early. It generally takes a month or two for a trade payment experience with a creditor to show up on your business credit report.

“Two people in elegant shirts brainstorming over a sheet of paper near two laptops” by Helloquence on Unsplash

The Massive Misunderstanding Part 2

When you are trying to get a line of credit, a loan, or supplies from a vendor with terms in your business’ name, the new potential creditor you are dealing with should pull your business credit to determine your business’ ability to pay back debt.

And this leads me straight into another expert insight that you must absorb.

Just like you can pull a business credit report on your business from 1 of the 3 bureaus, so can they — and that’s exactly what the majority of them do.

So what does this have to do with the price of tea in China?

Everything. Let’s review a situation we covered earlier in this article.

Remember when I said this…

Your creditors are reporting, but when you pulled a business credit report on your own business, you pulled a report from a bureau that your existing creditors are not reporting to.

Well businesses who only use 1 bureau to pull your business credit data are running into the exact same issues when trying to find your business’ credit.

I’ll rework my quote above to show you how this situation affects both you and the ability for a potential creditor to locate your business credit.

Your creditors are reporting, but when a new potential creditor pulled a business credit report on your business, they pulled a report from a bureau that your existing creditors are not reporting to.

“Why don’t they pull my credit from all 3 of the bureaus?”, you ask.

Great question. They do this because it’s generally quite expensive for a creditor to pull a report on your business from Experian, Dun & Bradstreet, and Equifax, so they choose 1 of the 3 bureaus to rely on for all of their credit decisions.

This is an inherently flawed process that is forcing lenders and suppliers to require personal guarantees from small business owners just to approve or deny them. This hurts a small business owner’s consumer credit and puts their personal assets at risk if their business is unable to pay back the debt.


“A businesswoman sitting at a table with a laptop and a glass of water” by rawpixel.com on Unsplash

Now Armed with This Information What Should You Do to Establish Your Business Credit Across All 3 of the Bureaus

It’s quite simple.

1. Be picky when possible

In situations where you have the flexibility of choosing between different lenders, suppliers, and service providers, ask them if they report their payments to the business credit bureaus.

But don’t just stop there.

Ask them which bureaus they report this information to.

The goal is to find creditors that are going to report how well you pay them back to Experian, Dun & Bradstreet, and Equifax, so no matter which bureau a future creditor pulls a report from, you will have positive trade payment experiences on that bureau’s report.

2. Pay these special creditors early

This is the real make it or break it moment.

You’ve worked hard to acquire these creditors that report to all of the bureaus, so don’t screw everything up by paying them late.

Remember: they report to all of the bureaus, so this will really hurt you if late payments are in every bureau’s database.

3. Monitor your business credit reports from each of the bureaus to ensure your business name, current address, and info is up-to-date and consistent

Since your business credit is established when your creditors report how well you pay them back to the bureaus, you are relying on them to report your business’ general information 100% accurate.

And that is not always what happens.

Due to common human data entry issues, your business name in their systems may not be what you would expect, and it is the name for your business in their systems that could potentially become your business name in the business credit bureau databases.

Here’s a real-world example for you.

Let’s say your business’ name is John’s Widgets, LLC., and you’re a new customer of Gear Parts Co., a supplier that has agreed to give you $10,000 worth of product in advance on Net 30 terms.

When initially creating your customer account with Gear Parts Co., you were speaking to Wanda who entered your business name in their system as Jon Widget, LLC.

If you followed my advice when choosing Gear Parts Co. as a supplier, you knew they were going to report how well you pay them back to Experian, Dun & Bradstreet, and Equifax, and they did — but there’s one catch.

They reported your name to the bureaus under Jon Widget, LLC and not John’s Widgets, LLC.

Luckily, if you already had a business credit file established with each of the bureaus, their systems are smart enough to know that this was an accidental typo, but if you have not yet established a business credit file with one of the bureaus, they will create your file under Jon Widget, LLC.

…And you’ll want to fix that to ensure all of your valuable business credit data is easily discover-able for future creditors who are looking for it.


The Gist

Establishing business credit is the wild wild west compared to its heavily regulated sister, consumer credit. Never assume you are building your business credit by paying your business bills on time. You have to actively seek out creditors to report this data to the business credit bureaus in order to establish your business credit.

With the many financial benefits you will experience with established business credit in all 3 of the bureau databases, you will be glad you spent the mental sweat equity.

Now go grow your business.

About The Author

Shadow Smith is the Creative Technologist of Business Credit Reports, Inc.
The world’s leading source of multi-bureau business credit reports.
You can connect with him on LinkedIn.