Building & Protecting Your Corporate Credit Rating

credit rating

Every successful, long-term business understands the crucial step in establishing, growing and protecting an accurate credit history. For those new to the business world, business credit history is used to establish a performance rating that reflects the credit worthiness of the business. Businesses that work hard to generate an excellent rating will reap benefits, including; lower rates, favorable terms on credit accounts and easier acquisition of loans in the future. In addition, institutions prefer to work with companies that have a proven track record of handling credit responsibly and demonstrate good financial management.

Your corporate credit profile will include all credit granted to your business and the activity history those lines of credit generate, both good and bad. While personal credit scores have no bearing on the outcome of your business profile, the purpose is the same – to determine how well your business manages their bills and if it’s in a good financial position to repay additional debt. Another important area that may be affected by your corporate credit rating is the acquisition or leasing of equipment and/or property.

It is wise for any and all businesses to stay on top of their company credit reports. There are a number of institutions that generate corporate credit ratings. They each use unique methodologies to generate credit reports. Here are several of the top institutions:

Dun & Bradstreet - In the same way that the FICO score dominates the arena for consumer credit reporting, a corporate credit profile maintained by Dun & Bradstreet is the most referred to rating, when a lender is considering a business’s risk factor. Their scoring system assigns a numerical score from 20 to 100.
Standard & Poors – S&P rates new and long-established businesses on a scale from AAA to D with ratings between each grade. In addition to the business rating, S&P often provides a ‘credit watch’ statement to indicate that a change in the rating is anticipated. This could be for a variety of changes that include an upgrade, downgrade or a questionable forecast.
Two Major Credit Reporting Bureaus – Experian uses the IntelliscoreSM system to predict delinquencies of more than 90 days. Equifax rates a business from 101 to 992 and provides a ‘reason code’ to help understand what has had the most affect on the score.

If your business’s credit rating is excellent, it won’t stay that way without your attention and intervention when company policies or actions may damage it.

Business Credit Cards: Easy approval is one reason 60 percent of small companies use a business credit card. A small business credit card will provide needed funds at reasonably low rates (averaging 15.50% as of April, 2013) and requires no collateral. It can be a helpful tool at times when cash flow is challenging. Business credit cards will only build your business credit rating, if the card is in the name of the corporation. Spending will need to be kept under control. Balances should be kept in a range that allows the full balance to be paid each month. If a balance must remain, work to keep the amount less than 30% of total credit.

Company Loans: When you need funding to expand or additional working capital for growing your business, a commercial loan is often the way to go. How you manage these types of accounts will have a big impact on the business’s credit rating. A well-managed bank loan will improve your score, as well as improve your opportunities to secure future financial help.

Adding Trade Lines: Every transaction made with your business accounts is called a trade line and needs to be included in your corporate credit reports. Some of the most common company business actions that may go unreported, include; shipping company contracts, office supply accounts, telephone services, website development and maintenance agreements. This type of activity has value and should be added to your credit reports to increase the depths of your credit history. When any are omitted, your business misses out on being able the showcase a complete credit record.

Request a copy of your business reports from the major credit reporting agencies and go over them for missed trade lines and any other discrepancies. Contact the appropriate agency if a debt is listed unpaid but was paid off, a late payment is recorded that never happened or any number of errors. Never pass up even the most seemingly harmless discrepancies. Always pursue having them corrected. The agency will have 90 days to respond and defend or remove the issue from the report.

In conclusion, establishing, growing and protecting your corporate credit rating is serious business. Have a strategy in place to protect your investment. Educate employees about the importance of corporate credit ratings and share your credit building strategy with every employee that is authorized to use credit or manages bank accounts and loans. By following your credit building strategy, you will be establishing a beneficial financial history that will help the business you’ve worked so hard to create.

Author Bio

Vanessa May is a regular contributor and a variety of financial blogs. Hoping to educate consumers, she uses government and other reputable sources to provide up-to-date, relevant news on money management, credit/debt, applying for credit cards, debt services and other finance related topics. Her goal is to inform consumers by providing information that may impact their ability to manage their financial situation responsibly.

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