If you pay your bills on time, you probably assume you have a good credit score. Why wouldn’t you?
You may be surprised.
It’s not uncommon for business owners who think they have good business credit to have no credit history or low credit scores.
And it may not be due to the common culprits you associate with bad credit, like late payments.
Here are common issues that may be bringing down your credit scores and what you can do about them.
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1. Lack of Trade Lines
Many business owners don’t have many (or any) accounts that appear on their business credit reports. But without accounts that demonstrate on-time payments, it’s difficult for bureaus or lenders to calculate a credit score.
The reasons for this lack of payment history are myriad. Some lenders and vendors don’t report to all the major business credit bureaus. Some report only negative information.
And some business owners are debt averse. They don’t want to risk taking on debt they may or may not be able to repay so they avoid credit all together.
If you’re in the latter group, the good news is you don’t have to use debt to build business credit. Trade lines and other accounts, like business charge cards, that you can use to establish a positive payment history without taking out a small business loan.
The most effective way to address this issue is to open accounts with companies that report to business credit bureaus. Net-30 vendor accounts are particularly helpful for new businesses or those with limited credit history. These suppliers allow you to purchase products you need in your business (think shipping boxes, or janitorial supplies) and pay for them within 30 days, giving you time to sell inventory or generate revenue before payment is due.
Business credit cards and business charge cards may also help build your credit history. Most major card issuers report to at least one commercial credit bureau. These cards offer the added benefit of helping you separate personal and business expenses, which is important for both credit building and tax purposes.
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2. Wrong Information
A few years back, a Nav customer who owned an insurance agency was having trouble getting insurance for his own business. He discovered that his business credit report contained information about another business with a similar name. That business did not have good credit. Once he got it straightened out, he was able to qualify for the insurance he needed.
If you think about how many businesses have similar names, or about how many businesses open and close each year, you can see how mix-ups happen. Unless the business owner–that’s you–checks their credit history and reviews the information it contains, those mistakes could go undetected for months or years.
Check your credit reports for obvious mistakes like an address or Employer Identification Number (EIN) you don’t recognize. Also pay attention to details like the industry classification codes (SIC/NAICS), and other identifying information listed.
Also pay attention to outdated public records (like UCC filings for loans you’ve paid off), incorrect payment histories, or accounts that you don’t believe belong to your business.
Small mistakes may not directly impact your scores but could indicate bigger problems.
If you do find errors, dispute them promptly with the credit bureau. The process varies by bureau. Keep in mind that the commercial credit industry isn’t regulated by the Fair Credit Reporting Act like personal credit, so the dispute process may be less standardized than what you are used to.
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3. Negative Information from Disputes
If you have a dispute with your supplier over something you ordered, you may refuse to pay until they fix it. Or perhaps an employee misused a company credit card.
Disputes sometimes get reported to business credit, and that can affect your payment history and credit scores.
Business credit scores place heavy emphasis on payment history—even more so than personal credit scores. Payment timeliness is often measured down to the day, with some scoring models specifically rewarding early payments.
That’s not to say you should never dispute a purchase.
But if you find yourself in a dispute with a vendor, try to keep communication open and document everything. Consider making a partial payment for the undisputed portion of an invoice to show good faith while you resolve the issue. If a vendor reports negative payment information during a legitimate dispute, contact them directly to explain the situation and request they correct the reported information.
Remember that business relationships are important, so approach disputes professionally and work toward mutually acceptable solutions whenever possible. Staying on good terms with suppliers may lead to more favorable credit terms in the future.
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4. Business Fraud and Identity Theft
Business identity theft is more common than most business owners realize. It’s a growing problem documented by firms like KrebsOnSecurity and the National Cybersecurity Society (NCSS).
I personally was a victim of business identity theft. Had I not been checking my business and personal credit reports, I doubt I would have known until long after it occurred. Who knows how much damage would have been done at that point?
Business identity thieves may use your business information to open fraudulent accounts, secure financing, or make purchases they never intend to pay for. The damage can take months or even years to fully resolve.
On his podcast, What the Hack?, Adam Levin interviewed business owner Andy Pham who had investment property of 2.7 million dollars stolen from under him. It took years for Pham to get it back.
Warning signs of business identity theft include unexpected changes to your credit scores, inquiries from companies you’ve never done business with, unfamiliar accounts appearing on your reports, or bills and collection notices for accounts you didn’t open. If you notice any of these red flags, act quickly to minimize the damage.
You can’t prevent all types of id theft, but the sooner you catch it, the sooner you can stop it. Keep your business information as secure as possible and shred sensitive documents.
Most importantly, monitor your business and personal credit. Pay attention to alerts that can notify you of significant changes to your business credit profile. This can help you catch potential fraud before it causes serious damage to your credit standing.
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Next Steps
Whether it’s a lack of credit accounts appearing on your credit reports, mistakes, or something more nefarious, if you want to improve your business credit the first step is to find out why it’s not as strong as you’d like. Then take the steps above to get it on track.
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