Did you know that credit reporting agencies allow consumers to see their personal credit reports for free and have errors, if any, fixed easily? This is required under the FCRA or Fair Credit Reporting Act. While this is excellent news for consumers, this doesn’t do anything for owners of small businesses who really need to safeguard their credit history. Businesses don’t really have a definite way to resolve errors they find on their credit reports. But is this really such a big deal?
Why Accuracy is Important in Your Business Credit Report
Accurate information on your business report is immensely vital since suppliers and lenders check your credit report to gauge whether or not you could pay your bills in a timely manner. Likewise, let’s say that you’re currently looking around for a lender who’ll fund the mall cart franchise you want to purchase and you found out that no lender will work with you because of your business credit report. You then check your credit report and find that there are errors. Tough luck right, unfortunately, this happens all too often. Usually, these errors include incorrect information such as outdated revenue figures, incorrect business profiles, and inaccurate industry classification codes. The problem is, while you can easily spot these errors, having them corrected would take you a significant amount of time.
Other Differences Between Personal Credit and Business Credit
Aside from easier error corrections, personal credit also differs from business credit in the following ways:
- Late Payments – With personal credit, you’re given a 30-day margin prior to any payment being marked late, while with business credit, a payment that’s recorded even a day late could reduce your credit score. In order to obtain a stellar PAYDEX score, which is the primary score utilized by vendors and suppliers for judging the credibility of businesses, you need to pay all your business bills early or on time. Some vendors even offer discounts to clients who pay their invoices ahead of time. For instance, some vendors offer 2/10 net payment terms, meaning that your invoice would be discounted by 2% if you settle it within 10 days.
- Allowable Purpose – Lenders, suppliers, and other relevant entities are required to provide a legitimate reason if they want to see your credit reports, such as when you’re applying for an insurance policy or mortgage. With business credit, however, anyone could check out your credit report without your permission and for whatever reason.
- No Notification Needed – In the event that your personal credit affects your loan application, for instance, your lender is required to inform you about it. This doesn’t apply with business credit. A potential client, supplier, lender, or vendor could choose to charge you a higher rate or not work with you at all because of what they find on your business credit report and not even inform you about it.
While it’s unbelievable that business credit and reports are not offered the same protections as personal credit, it is the reality. It is your responsibility as a small business owner to ensure that your business credit report is always free from errors and is as accurate as can be. Neglecting it simply isn’t an option.