Your credit profile

Understanding how you are assessed when applying for credit and the importance of keeping your profile up to date

Did you know that banks and other credit providers (including trade credit providers such as phone companies) look at your company's credit report before they decide whether or not to extend credit to your business?

That means that every time you seek funds from a bank or try to sign up for a phone plan, an electricity account or an internet service, the service provider will use a credit bureau to view your credit report and asses whether you have the money to pay for that service. This means understanding the credit application process and the information contained in your company's credit report is critically important, particularly for SMEs who are often impacted by bumps in the cash flow cycle.

Understanding how the process works could be the difference between having your next credit application approved or being left out in the cold during a period that's tight on funds or when you need to make a key trade credit purchase. So what do you need to know?

  1. Credit checks are used to determine the financial health of your business:

    Financial institutions and trade credit providers use credit reports to determine the financial health of a business when a credit application is made. The information in your company report helps the service provider to determine whether the application is accepted or rejected and the rate of interest charged.

  2. What information does your business credit report contain?
    A D&B Report gives a credit provider information about your operations, credit history, profitability and stability. It allows them to answer critical questions before they extend credit:

            -  Is this company a "one-man operation"?
            -  Can this company afford to pay the funds back?
            -  How much credit should I extend?
            -  Is my credit line significantly higher than other creditors?
            -  How has the company been performing? Are they viable?
            -  Do their financials compare favourably to the rest of their industry?
            -  Do they have external funds it can draw on?
            -  Are they dependent on high risk companies?
            -  Has there been any litigation against this company and/or its directors?

  3. Your personal credit file may be used for lending decisions:
    For SMEs, many of whom use a personal line of credit for their business, it is important to understand that lenders are likely to seek out both your business and consumer credit reports to determine financial stability. Make sure you check both of your credit reports regularly for accuracy and up-to-date information. Keeping your credit reports as up to date as possible is a great way to ensure that potential credit providers have the best possible view of your firm.

    Check my commercial credit report | Check my personal credit report

  4. Past performance may not be enough to get you through:
    Past credit performance with a particular firm may not be enough to maintain current credit arrangements. Credit providers are very conscious about risk and are always seeking to manage their creditors to ensure they get paid. This means if the credit provider detects increased risk with an existing client it may lower the organisation's credit limit or, if the risk is particularly significant, seek to call in all outstanding debts and cease the credit relationship.

Decisions about the extension of credit - whether it be funds from a bank or trade credit for a product or service - don't take place without the use of a credit bureau. This means that any business that doesn't stack up financially is going to have its application rejected. By learning how the process works and ensuring that your business is doing the things that will positively impact your credit report, you can ensure that your business has access to the goods, services and funds it needs when it needs them!

 

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