Your Experian Business Credit Report: How to Dissect & Understand It

Your Experian Business Credit Report: How to Dissect & Understand It

Have you run a credit report for your business yet? If not, you’re missing out on valuable information your business needs to be successful. A business credit report will help you understand and improve your business credit score, which is essential for the financial health of your business. If your business credit score is anything less than good, it can affect the amount of credit suppliers will extend to your business and the interest rates you’ll pay.

Experian is a known information services agency for consumer and business credit reporting. The agency collects and aggregates information for individuals and businesses. In addition to its credit services, the company also sells analytic and marketing programs to businesses. In this post, we’ll explain how Experian calculates your business’ credit score and walk you through the credit report that comes with it.

How Is Your Experian Credit Score Calculated?

Your Experian credit score is calculated by a statistically-based algorithm designed to determine risk based on credit, public records and demographic information. To do this, Experian needs to collect three types of information about your business:

  1. Credit obligation information from suppliers and lenders
  2. Legal filings from local, county and state courts
  3. Company background information from independent sources (such as state filing offices, public records, credit card companies, collection agencies, corporate financial information and marketing databases)

The above information is combined with data from other sources, such as your business’ trade payment experiences submitted by payees, public records and collections information.

Your Experian Business Credit Score is used to predict payment behavior. Experian will attribute a number to your business between 1 and 100, with 1 being the highest risk and 100 being the lowest risk. “High Risk” means there is a significant probability of delinquent payment, while “Low Risk” means there is a good probability of making an on-time payment.

Understanding Your Experian Credit Score

You’ve received your business credit score with a detailed report to accompany it. Knowing the in’s and out’s of your credit report is important and will help you understand areas that are negatively affecting your score or even instances of fraud.

Section 1: Key Facts

The “Key Facts” section includes basic information about your business, such as the address and phone number. It may also include (if available) your number of employees, sales, years in business, primary business activity or any other demographic data.

The “Experian File Established” shows the number of years Experian has been collecting data on your business, which could be different from the “Years in Business” (because you may not have been working with Experian from the start). Lastly, the Experian BIN is a unique identification number that ties your business back to their database and can be used as a reference when locating information about your business.

Section 2: Executive Summary

The “Executive Summary” provides a high-level overview of the entire business credit report document. It includes a “Days Beyond Terms” (DBT) summary, which shows the average number of days a firm pays its bills past the invoice due date. Based on your DBT, it will show a predicted DBT for 60 days into the future.

It also provides a high-level look into the financial health of your business by including a payment trends indicator, which is a method of predicting how quickly future payments will be made based on historical payment information (lowest and highest six-month balance, current total account balance, highest credit amount extended).

Section 3: Credit Summary

To find out the creditworthiness of your company, this section provides the most value. Experian will provide your business credit score here. Using the algorithm stated above, Experian will provide a numerical output. Remember, “High Risk” means you have a significant probability of delinquent payment, while “Low Risk” indicates a good probability of on-time payment.

The “Key Score Factors” listed are primary items used to derive your business credit score. There is also a recommended action section that reflects the risk associated with expecting on-time payment.

Section 4: Payment Summary

This section uses graphical elements showing the company’s payment history over time. The graphs show your business’ percentage of on-time payments to vendors per month or quarter and compare it to the industry average. In this section, you’re able to see the payment pattern your company established on a monthly or yearly basis.

Section 5: Monthly/Quarterly Payment Summary

The monthly and quarterly payment section shows via charts your monthly and quarterly payment history over time. To explain the charts further, we’ll focus on the Monthly Payment Trends chart. Each line item by date shows the balance, which is the money owed that month. It also shows the “current,” which represents the percentage of tradelines where your payment has been made within terms.

The column labeled “DBT” or “Days Beyond Terms” shows the average number of days your business pays its bills past the invoice due date. Color-coding is used to predict DBT based on observed norms of all U.S. businesses. Continuing columns show the percentage in which your business pays its bills in a set DBT. Ultimately, this section references your payment history to help determine how likely you are to make on-time payments in the future.

Section 6: Payment Trends

This section provides additional graphics related to your businesses payment trends. Each graph represents trends in distribution with DBT.

  1. Continuous Payment Trends: Depicts a tradeline that has been reported for more than six months.
  2. Newly Reported Payment Trends: Any tradeline that has been reported for the first time in the last six months.
  3. Combined Payment Trends: The account balance for combined tradelines. This is the total dollar balance for all new and continuously reported tradelines.

Section 7: Trade Payment Information

“Payment Experiences” or “Financial Trades” refer to credit card and leasing accounts. The first chart under this section will outline any leases or credit cards with an outstanding balance, and it will show your payment history that’s been applied to those credit cards and leases.

The second chart outlines your business’ “Tradeline Experiences” or “Continuous Trades.” These are tradelines that have been in your Experian file for at least six months and updated at least once in the last three months. This section could also contain newly reported tradelines that have been added to your file in the last three months. You will find suppliers and vendors that you consistently do business within this category.

Section 8: Additional Tradeline Experiences (Aged Trades)

This section will show you lines of credit that your business has held open in good standing for a long period (typically more than two years). These accounts have aged and have an established history.

Section 9: Summary of Inquiries

Each time another company such as a lender or bank inquires about your company, they are checking your business credit score. This section provides a list of all companies who have inquired about your business within the last nine months.

Section 10: Collection Filings

If your business has unpaid debts, those debts will get sent to collections. This section will show you any open or closed collections, what was disputed and the amount collected. Open collection tradelines are tradelines that collections are still collecting. Closed collection tradelines are tradelines that collection agencies have either collected on or abandoned.

The “Collection Filings Detail” will include any areas where your company has collections listed. It will then show any details associated with collections that have been reported. The “Collections Summary” is just that — a summary of the actual collections reported with data summarizing the status of the collection activity.

Section 11: Commercial Banking, Insurance, Leasing

The section includes any information Experian has available about commercial financial relationships your business may have with a financial institution, insurance company or lessor. The information in this section would include the name of your company’s primary bank, insurance companies with any of your businesses policies and details of leases that have been reported, such as your office space.

It gives a complete summary of your standing with said institution, the term of the loan, original loan amount, balance left, payments per year, late payments and overdue payments.

Section 12: Judgment Filings

This section simply shows if any legal judgments have been filed against your company. If your business has a judgment filed against it, that means someone or a company has filed a lawsuit against your business for uncollected debts.

Typically, a business will receive notification of said judgment via mail or phone call. However, it’s also possible to see this when you’re checking your business credit report. If this happens to your business, there are many ways to resolve the issue, such as paying the balance in full, working with a creditor to settle the debt or filing bankruptcy.

Section 13: Tax Lien Filings

A tax lien is imposed by law upon the business to secure the payment of taxes. It may be imposed for delinquent taxes owed on real or personal property, or as a result of failure to pay income taxes. This section shows activity related to any tax liens levied against your business. The information will include:

  • Date
  • Filing agency
  • Legal type and action
  • Liability amount and description

It’s very important to know if your business has a tax lien. This report will help point them out and let you know if they’re becoming a higher risk due to nonpayment.

Businesses use credit scores for many reasons. Learning how to establish and build your business credit score can help you save money and give you more access to financing. It’s important to understand the reason behind your score and ways you can improve it.

Chris Keller is a veteran in business finance. Prior to starting and managing his own business, he managed product lines at two Fortune 500 companies focusing on their Profit & Loss statements.
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