What Every Merchant Needs to Know About Business Credit Repair
Small- and medium-sized businesses are finding it increasingly difficult to navigate today’s complicated credit landscape. Maybe you’re negotiating vendor payment terms or searching for a business loan. Perhaps you’re planning upcoming equipment or building investments, or preparing for a national product launch.
Or, you’re simply trying to improve your business’ financial picture as you project future growth. Regardless of the reason, a good business credit profile is key.
Background on Your Business Credit Score
Your company’s business credit score gauges the overall creditworthiness of your business. The business credit score is derived from the data in your business credit report.
Four major business credit entities play major roles in your credit report. Dun & Bradstreet, FICO SBSS, Experian, and Equifax are well-known names in the business credit industry. Although each credit bureau scores items a bit differently, they all emphasize your business’ ability to meet its credit obligations on time.
Business credit scores generally fall within the 0 to 100 range, although a few scales show higher numbers. High scores are regarded as good business credit scores, as they appear to indicate a low business credit risk.
High-scoring companies are given a reduced chance of making delinquent payments. In turn, this designation makes them more attractive to lenders and business partners.
Implications of Substandard Business Credit
If your credit profile contains some inaccuracies, or questionable items that could raise a red flag, you should take them seriously. For example, maybe one of your regular vendors paid you late for the first time. Or, your account has gone to collections because you’re waiting for a resolution on a large order that contained numerous inaccuracies.
These financial issues may have impacted your credit profile in ways that aren’t apparent. At the same time, prospective employees, clients, and industry partners may be evaluating your company in preparation for future employment or business transactions. They may rethink their choices based on potentially erroneous information.
5 Business Credit Repair Strategies
Before you contact a business credit repair service, take five steps to improve your business’ credit profile. Remember that it takes time to see measurable results.
Restructure Your Outstanding Debt
If you’re tight on cash, contact each lender and/or creditor, and negotiate your account repayment terms. In most cases, your debtors would rather revise your payment terms rather than risk losing all of their money if your business filed for bankruptcy.
Address Your Account Delinquencies
Contact your lenders and/or creditors. Ask them to delete any negative reports on your account after you’ve made at least six to nine consecutive on-time payments.
Reduce Your Business Credit Usage
Don’t utilize any more than 30 percent of your total line of credit. For a $10,000 line of credit, for example, keep your credit utilization under $3,000 at all times.
Report Your Credit Line Paydowns
When you drastically pay down a line of credit, report that positive action to the four credit reporting agencies. This helps to counteract any negative marks on your credit profile.
Submit Favorable Trade References
If you always pay your vendors on time, ask them for a letter that emphasizes that responsible behavior. Send those letters to the four credit reporting agencies.
How Business Credit Repair Services Work
With your business’ credit profile impacting several areas of your operations, and so much uncertainty about the records’ accuracy, you’re naturally concerned about resolving potential problem issues. Enter business credit repair companies that offer to solve your credit problems (for a fee, of course).
3 Steps of a Business Credit Repair Cycle
1) The company asks for copies of your credit report. You’ll obtain the report from the four major credit reporting agencies: Dun & Bradstreet, FICO SBSS, Experian, and Equifax.
2) Once the company receives the reports, they’ll analyze them with credit repair business software. Next, they’ll create a list of items that should be disputed.
3) Assuming you’re in agreement on the disputable items, the credit repair service will contact the credit reporting agencies. The service will dispute any inaccurate or questionable items on the report.
How Long Will the Process Take?
The length of the credit repair process depends on your business’ credit profile complexity. If only a few erroneous reports are impacting your credit score, the business credit repair service may be able to resolve them within a couple of months. If you have a long history of delinquencies, however, the process could take at least six months.
Beware of Questionable Credit Repair Practices
Credit repair companies have gained a checkered reputation over the years. Although some credit repair businesses may operate in an ethical manner, others appear to have made unrealistic promises to their clients.
As the Federal Trade Commission has stated, some companies promise to conceal your bad credit history or even a past bankruptcy (for a small fee, of course). You may even be encouraged to engage in fraudulent entries on credit or loan applications. These practices can get you in serious legal trouble, resulting in fines or even prison time.
How to Identify a Credit Repair Scam
The Federal Trade Commission explains numerous “red flags” that point to a credit repair company’s lack of legitimacy. Most importantly, if the business doesn’t insist on a written contract, they probably don’t engage in ethical business practices.
Signs of a Consumer Credit Repair Scam
In addition, if the company takes any of the following actions, there’s a good chance they’re running a scam operation. For the sake of your legal and financial best interests, avoid any interactions with them. Here are the warning signs:
- The company wants their service fee before doing any work.
- The company doesn’t want you to monitor your credit or contact the credit reporting agencies.
- The company urges you to dispute negative items on your credit report even when you know the information is correct.
- The company wants you to furnish inaccurate information on loan or credit card applications.
Signs of a Business Credit Repair Scam
As a business owner, you should also note these additional caveats that specifically apply to business credit repair issues. Avoid companies that make the following promises:
- The company states that they will establish or improve your business credit in under three months.
- The company does not have a website. If they do have one, there’s no client login on the home page. In addition, there aren’t any ratings, reviews, testimonials, or client feedback on the site.
- The company boasts about business contacts or network relationships that they’ll use to help improve your business’ credit.
How the CROA Can Protect Your Business
The Credit Repair Organization Act (CROA) provides important protections against credit repair scams. The Federal Trade Commission enforces this law, which requires all credit repair companies to provide explanations on five important issues:
- The company must issue a written contract, in which they explain your legal rights and list the services they will perform.
- The company must discuss your three-day “right to cancel” without being assessed any fees.
- The company must explain how long it takes to obtain results.
- The company must state the total amount they will charge.
- The company must explain any guarantees that it offers to clients.
Finally, under the CROA Act provisions, it’s illegal for credit repair companies to lie about the services they can perform for your business. In addition, it’s also illegal for the company to charge you before they’ve actually performed the services your business needs.
Quick FAQs about Business Credit Score
Q: What is a business credit score and why is it important?
Your company’s business credit score assesses the overall creditworthiness of your business. This score is derived from the data in your business credit report. A good business credit profile is critical for negotiating vendor payment terms, securing business loans, and projecting future growth.
Q: Who are the major business credit entities?
Four major business credit entities play significant roles in your credit report. They are Dun & Bradstreet, FICO SBSS, Experian, and Equifax. They all emphasize your business’ ability to meet its credit obligations on time.
Q: What is a good business credit score?
Business credit scores generally fall within the 0 to 100 range, although some scales show higher numbers. High scores are regarded as good business credit scores, indicating a lower business credit risk.
Q: How can financial issues impact my business credit profile?
Financial issues such as late payments from vendors or accounts going to collections can negatively impact your credit profile. This can affect the perception of prospective employees, clients, and industry partners who may evaluate your company for future transactions.
Q: How can I improve my business’ credit profile?
You can take steps such as negotiating repayment terms with lenders and creditors, maintaining credit utilization under 30 percent of your total line of credit, and sending letters of responsible payment behavior to the credit reporting agencies.
Q: What is the role of a business credit repair service?
A business credit repair service analyzes your credit reports, identifies disputable items, and contacts the credit reporting agencies to dispute any inaccurate or questionable items.
Q: How long does the credit repair process take?
The length of the credit repair process depends on the complexity of your business’ credit profile. It could take a couple of months for simple cases, while more complex situations could take at least six months.
Q: What are some red flags to watch out for when choosing a credit repair company?
Watch out for companies that demand service fees before doing any work, discourage you from monitoring your credit or contacting credit agencies, urge you to dispute correct negative items, or ask you to provide false information on loan or credit card applications.
Q: What promises should I be wary of from credit repair companies?
Avoid companies that promise to establish or improve your business credit in under three months, don’t have a client login on their website, or boast about business contacts they’ll use to improve your credit.
Q: What protections does the Credit Repair Organization Act (CROA) offer?
The CROA requires all credit repair companies to provide a written contract listing the services they will perform, explain your legal rights, discuss your three-day “right to cancel” without any fees, state the total amount they will charge, and specify how long it will take to see results. The Act also makes it illegal for companies to lie about the services they can perform or to charge you before they’ve performed the services.