How to Read a Business Credit Report

It is important to know how to read a business credit report if you are going to grant credit to a customer or are considering a partnership with a new supplier. Generally speaking, a business credit report provides information on the credit history of a company including past bills, late payments, and other financial responsibilities.

Credit Risk Rating

Perhaps the most important part of a business credit report is the credit risk rating. This is a rating system that is meant to help you gauge the potential risk of late payments. Ratings are generally based on what the company has done in the past. Make sure you know how to interpret the rating system. A high rating, for instance, means that the company has had credit issues in the past.

Payment History

This section of a business credit report allows you to see how a company has handled payments in the past. It is important to review this section thoroughly, paying special attention to whether payments are made in full and on time. If possible, compare the business credit report for two or more similar companies to get a feel for what the industry average looks like.

Basic and Background Information

Although many people overlook it, a business credit report will include all the basic and background information you could need. This includes name, address and phone number. Along with this, the report may offer information on the type of business and industry, as well as sales numbers and an employee count.

Legal

Are you worried that the company has filed bankruptcy in the past? Do you get the feeling that they may have had other legal issues? If so, you will find out about all of this on a business credit report. Any lawsuits, liens or other filings will give you an inside look at how the company operated in the past and what they are currently doing, if anything, to resolve the issue.

UCC Filings

UCC stands for Universal Commercial Code. This offers information on the current leases and liens associated with the company. Information in this section can lend insight on how the company uses credit and what you may be able to expect from them. You may find that they have a lot of existing loans, and you may think that adding another to the group could put them in a bad financial position.

Age of the Company

This is another one of those sections that is often overlooked but is actually very important. The age of a company should tell you a lot about its stability. Older companies are usually better at managing their money than those that were just started.

The first time you look at a business credit report you may be confused by all the information and what it stands for. If you focus on the sections detailed above, pulling the right facts and figures can be simple.



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