Mastering Business Credit (Preview)

Chapter Two: Understanding Corporate Credit

2a. Fundamentals The perception lenders, vendors, and creditors have of a business is critical to the business’s ability to build strong business credit. Before applying for business credit, a business must ensure it meets or exceeds all lender credibility standards. In total there are over 20 credibility standards that are necessary for a business to have a strong, credible foundation. When building business credit, everything matters. Approval is sometimes based on the exact number of employees claimed on the application. In other cases, a business might be denied if they don’t claim the right amount of vehicle gas usage in a month. Certain types of phone numbers should not be used. While it is essential to ensure your number is listed in places the business credit reporting agencies and creditors will look, if a business doesn’t have the right type of phone number or if it isn’t listed in the right places, the business will be denied credit. The type of corporation you list, the years your company has been in business and the type of ownership all factor into getting a business APPROVED for higher credit limits. Most importantly, knowing and understanding which of the thousands of creditors to apply to and in which order to apply are essentials in the business credit approval process. The first step in building business credit is all about establishing credibility for the company. The business owner should think about the approval process from a lender’s perspective to improve chances of approval. Lenders are in business to lend to companies they consider to be a “safe risk.” They will be doing several underwriting checks to see if the business is “safe” enough for them to consider extending credit. Part of establishing the business as a safe risk is following lenders’ standards for approval. Complying helps the business establish credibility and is an important foundation for business credit building success.

Business Fundability is essential in getting approved for business credit. You will not find “Fundability” on Dictionary.com, so don’t bother looking. Fundability is a phrase those of us in the lending industry have coined to describe how a business measures up in relation to the entire business lending and investing community. Fundability is not just about business credit. It includes several components that determine how the overall business is seen by lenders, investors, insurers, suppliers, and more. Basically, the business was worth the risk for the business owner, but is it worth the risk for the lender? The answer will increasingly be “yes” as the business fundability grows. By improving the fundability of the business, the business owner is truly improving the overall “health” of the business while greatly increasing the ability of the business to succeed now and in the future. The major components of Business Fundability include business bank accounts, business assets, business revenue, and the owners and their credit history. Every lender has approval guidelines they follow when considering a loan application. Here are a few of the main items that typically get a business denied when trying to build business credit and obtain financing: • No 411-directory assistance listing means no loan • Bank account balance rating of “low 5” likely means no loan • Having fewer than 5 trade credits accounts reporting to credit bureaus means no loan • Not having a credit file number will mean not getting that loan • Business credit scores below 70 usually mean no loan • The lender may insist the business has a debt coverage ratio of 5:1 or better or deny the loan • Or a business might be turned away due to any of a host of other reasons It only takes one reason for a lender to deny the application. And it is even tougher as many conventional banks offering funding require extensive documentation for a client to qualify.

Some of this required documentation includes: • Interim financial statements • Most-recent Federal Tax Returns for each principal owner • Accountant-prepared financial statements including Profit & Loss statement and Balance Sheet for the last 3 years • Personal financial statements for each principal owner • Organization papers, such as incorporation papers, DBA papers, business licenses, etc. • List of business and personal assets that can be used as collateral • Names and contact information for at least three credit references These documents can be very difficult for a start-up business to supply, especially if they have never done any business before. Many banks expect a business to be already established before they request financing. But it is possible to get started without having an established business. Building a Strong Foundation One of the first aspects of an application a lender will look at is the business name. A business must use its exact business legal name. The full business name should include any recorded DBA filings the business is using. A business must also ensure the business name is the same on the business corporation papers, all licenses, and bank statements. Business credit can be built with almost any type of corporate entity. If the business owner truly wants to separate business credit from personal credit, their business must be a separate legal entity, not a sole proprietor or partnership. Unless they have a separate business entity (Corporation or LLC) they might be “doing business” but they are not truly “a business”. A business must be a Corporation or a LLC in order for business credit to be truly separate from personal credit. Business credit cannot, and does not, exist for a sole proprietor.

All that a sole proprietor has available are personal loans or lines of credit. This credit is tied to the business owner’s personal social security number. Every business entity must have a Federal Tax ID number (EIN) to apply for business credit, whether that business has employees or not. A Tax EIN number does for a business what your social security number does for you as a person. This number identifies the business to the Federal government and IRS. The business Tax ID number is used to open business bank accounts and to build the business credit profile. A business owner must take the time to verify that all agencies, banks, and trade credit vendors have their business listed with the same tax ID number A business must have a real brick-and-mortar building to look credible to most lenders. The address must be a real deliverable physical address. The business address cannot be a home address. The address cannot be a PO box or UPS address. Many lenders and merchants will not approve a business for credit unless this criterion is met. There are a few popular solutions for business owners who might not have a real physical address. One of those solutions is an “Address Only” virtual office. With this type of office, a business can receive mail and packages at their own professional and real dedicated business address. That mail is then forwarded to wherever the business chooses. Another business address solution is a “Virtual Office”. With this type of office, the business has a real professional business address and a dedicated phone and fax number. This service commonly comes with receptionist services and sometimes also includes part-time use of fully furnished offices and meeting rooms. A “True Office” is a real office a business owner can rent. The business will have its own full-time private office with receptionist services, dedicated phone and fax, Internet, full furnishings, meeting rooms, and many more amenities. With any of these solutions a business can create the perception that it functions out of a big office, in many cases out of a major city. But it could just be a one-person home-based business.

This boost in image credibility will help the business get approved for more credit and higher limits on the approved credit. A business must also have a dedicated business phone number that is listed with 411 to appear credible to most merchants and lenders. The listing should be in directory assistance under the exact business name. Lenders, vendors, creditors, and even insurance providers will verify that the business is listed with 411. A toll-free number will give the business credibility, but the business must have a LOCAL business number for the listing with 411 directory assistance. Lenders perceive 800 Number or toll-free phone numbers as a sign of business credibility. Even if the business owner is a single owner with a home-based business, a toll-free number provides the perception that the business is an even bigger company. It is incredibly easy and inexpensive to set-up a virtual local phone number or a toll-free 800 number for any business. No business owner should ever use a cell or home phone number as their main business line. This can get that business “flagged” with the business credit reporting agencies as an un-established business that is too high a risk. Lenders perceive a credible business as one with a fax number. Every business owner will need a fax number to receive important documents and to fax in credit applications to lenders and merchants. With e-faxes, which can be set up very affordably, you can have faxes be received and sent to you through email. And there are even some companies who can set up a company to send faxes over the internet from email. Credit providers will research the company applying for credit on the Internet. It is best if they learned everything directly from that company’s website. Not having a company website will severely hurt the chances of that business obtaining business credit. There are many places online that offer affordable business websites, so a business can have an Internet presence that displays an overview of the company’s services and contact information.

Every business also needs a professional company email address. It’s not only professional, but greatly helps the business’ chances of getting approved for new credit. Setting up a business email address is too easy and inexpensive for a business owner to neglect. When a business sets up its email addresses it’s essential that they avoid using free email services like Yahoo and Hotmail. There is nothing worse than credit providers seeing an email address like [email protected]. The email address should be @company.com. A great example is an email like [email protected] or [email protected]. The business’ banking history is vital to the business’s future success of being able to secure larger business loans. The date the owner opened the business bank account is the day that many lenders consider the business to have become operational. So, if the business was incorporated 10 years ago but the business bank account was just opened yesterday, then that business started yesterday. The longer the business banking history, the better the borrowing potential will be. One of the most common mistakes when building credit for your company is non-matching business addresses on the business licenses. Even worse is not having the “required” licenses for your type of business to operate legally. Every business owner needs to contact their State, County, and City Government offices to see if there are any licenses or permits required to operate their type of business. They must also ensure that state business filings are listed correctly, county license and/or permit filings are listed correctly, city license and/or permit filings are listed correctly, and IRS filings are listed correctly. They must also confirm that every agency, creditor, supplier, and trade credit vendor have their business listed the exact same way. A business must be listed with the exact same spelling of the business name and the exact same address and phone number. For example, one might have you listed as “ABC, Inc.”, while another has “AB Consultants”, and yet another as “AB Consultants, Inc”. There are also simple differences like those between “Suite 400”, “# 400”, and “Apt. 400”.

The differences are important and should be corrected where possible. Every business owner should take the time to verify that main agencies (State, IRS, Bank, and 411 national directory) have their business listed the same way and with the Exact Legal Name. Also, they should take the time to ensure every bill (power bill, phone bill, landlord, etc.) has the business name listed correctly and comes to the business address. All applicable business tax returns must have been filed for a business owner to have a credible foundation. There cannot be any derogatory public records for the business including no liens, judgments, or Lis pendens against the business. Many lenders will also want to see a business model when the business is applying for higher amounts of funding.

2b. Scoring A business credit score is a mathematical model that is used to depict a business’s risk of defaulting on an account within the next 12 months. Business credit scores reflect the likelihood that a customer will pay the merchant back as agreed. Merchants use business credit scores to help them make decisions as to who to lend money to and at what interest rate and terms. Business credit scores are very different from personal credit scores, for many reasons. Firstly, a business credit score reflects the business’s likelihood of defaulting on an obligation, not the business owners. Most business owners have their own consumer credit scores established. Their business also has its own score, based on how the business obligations are being paid. Consumer and business credit scores also differ in their fundamental makeup. Consumer credit scores outline a consumer’s risk of going 90 days late on an obligation within the next 24 months. Business credit scores reflect the business’s risk of going 90 days late on an obligation within the next 12 months. Consumer credit scores range from 350-850, with 850 being the best. Credit scores of 800 and above are considered excellent credit. Scores of 700 and above are typically considered good credit while scores of 600 reflect average credit. Consumer credit scores of 500 reflect below average credit and scores of 400 or less reflect poor credit. Consumer scores have five main components. Each of these components carries a different percentage of the overall credit score makeup. The largest aspect of the score relates to payment history, which accounts for 35% of the overall credit score. With consumer credit scoring, the consumer’s available credit or their use of their accounts is the second largest score factor, affecting 30% of the overall score. The length of time the credit file has been open for accounts for 15% of the overall score. The credit mix and the amount of new credit that the consumer is applying for each account for 10% of the overall consumer credit score.

Business credit scores typically range from 0-100, with 100 being the best. Business credit scores are based on one factor only: whether the business pays its obligations on time. The business’s score directly reflects how that business pays. There are three main agencies offering business credit profiles and scores. These agencies all have their own unique credit scoring formula. Despite their differences, most of their score ranges remain between 0-100. The three reporting agencies who are best known for offering business credit risk scores are the previously discussed Dun & Bradstreet, Experian, and Equifax. Dun & Bradstreet The main credit score used in the business world is known as a Paydex score, provided by Dun and Bradstreet. The exact definition from Dun & Bradstreet (D&B) is: “The D&B PAYDEX® Score is D&B’s unique dollar-weighted numerical indicator of how a firm paid its bills over the past year, based on trade experiences reported to D&B by various vendors”. The Paydex score ranges from 0-100, with 100 being the best score a business can obtain. A score of 80 or higher is considered “good” or healthy credit. A business can obtain a good business Paydex credit score by ensuring payments are made promptly to suppliers and vendors. D&B also offers a predictive credit score, the Supplier Evaluation Risk Rating (SER). This rating predicts the likelihood that a company will file for bankruptcy and cease operations within the next 12 months. This score ranges from 1-9, with 1 being the lowest risk and 9 being the highest. D&B’s other supplier risk score is the Supplier Stability Indicator (SSI). This model predicts the likelihood that a supplier will encounter a large and significant financial or operational stress over the next 90 days. This score ranges from 0-10 with 0 being the lowest risk and 10 the highest.

Every business must first have a D.U.N.S number before Dun & Bradstreet will assign a Paydex score. The Data Universal Numbering System (DUNS) is a business identifier code provided by Dun and Bradstreet. This business identifier code was developed in 1963 to support Dun and Bradstreet’s credit reporting practices. Today the DUNS number is widely used to identify businesses lending for issuing new credit. It is also used by the European Commission, United Nations, and the United States government. More than 50 global, industry, and trade associations recognize, recommend, or require DUNS. The DUNS database now contains over 100 million entries for businesses throughout the world. The DUNS number is a nine-digit number issued by Dun & Bradstreet and assigned to each business location in the D&B database, each having a unique, separate, and distinct operation for the purpose. The DUNS number is a randomly assigned number used to identify the business. Unlike the National Employment Identification Number (EIN), a DUNS number may be issued to any business worldwide. Certain U.S. government agencies require that a vendor have a DUNS number as well as a U.S. Employer Identification Number (EIN). The Office of Management and Budget, a United States federal agency, announced in the June 27, 2003 issue of the Federal Register (68 FR 38402) that a DUNS number would be required for all grant applicants for new or renewal awards submitted on or after October 1, 2003. The DUNS number supplements other identifiers, such as the EIN, and is required whether the application is made electronically or on paper. Other agencies, such as some United Nations offices and Australian government agencies, require certain businesses to have a DUNS number. A DUNS number is also a way in which separate corporate entities, having no official relationship, can be branded as one by sharing a single DUNS number among the affiliated companies. A DUNS number is sometimes formatted with embedded dashes to promote readability, such as 15-048-3782. Modern usage typically omits dashes and shows the number in the form 150483782. The dashes are not part of D&B’s official definition of the DUNS number.

Numerous other business numbering systems exist independent of DUNS—for example, the International Suppliers Network system. However, few, if any, register as many international businesses as DUNS. Today the Dun and Bradstreet’s unique DUNS number is the most widely used worldwide method of identifying businesses. Dun & Bradstreet credit reports provide access to the Paydex score and a great deal of other valuable information. The business’s name, address, and phone number are on each report, along with the business’s history, including incorporation date, shares of business owners, and even information on directors, including resume details. D&B also lists any affiliations with that business and other businesses, other branches, even subsidiaries. D&B reports also include financial information such as known sales for the company and net worth (if known). They list the financial condition of the company, their own rating, the DUNS number, and a breakdown of what the Paydex score represents along with the actual score. Dun & Bradstreet further lists in their reports details on payments the business has made for each individual account, including their full payment record, their upper-credit limit, how much they currently owe on each account, how much is past due, what the terms of the account are, and when the account was reported and last updated. Extra information S&B provides includes detailed financial information for the business. This information might include current assets, liabilities, working capital, net worth, sales, new profit and loss, and more. D&B will even detail the actual assets and liabilities if these are known. Also included in D&B reports are public record information, including judgments, bankruptcies, other public filings, other liens, UCC filings, and government activity for that business. D&B reports also list payment details for each account. They also add detailed commentary to the report indicating payment patterns. The term “Antic” indicates that payments are typically received prior to the date of invoice (Anticipated). The term “Disc” means payments are received within the trade discount period (Discount). The term “Ppt” indicates that payments are received within terms granted (Prompt).

“Slow” confirms that payments are beyond vendor’s terms and are being paid late. The term “Ppt-Slow” indicates that some invoices are paid within terms, while others are paid beyond terms. The symbol (#) indicates that no manner of payment was provided. And some accounts even provide payment commentary such as “credit refused” or “cash advance”. One of the most important sections of the D&B Business Credit Report is the payment summary section. There are two scores in this section that are critical to the report and can separate a good report from a bad one. While the two scores – the PAYDEX score and the PAYDEX score key – are related, they deal with separate issues that the business owner needs to know and understand. The PAYDEX score is a statistical measure of your business creditworthiness, basically the business’s ability to pay its debts, very similar to a person’s personal creditworthiness. A PAYDEX score of 80 is like that of a 700 personal FICO credit score. A business will need a PAYDEX score of 80 to obtain the most favorable financing. This score simply reflects the business paying all bills on time. To obtain a PAYDEX score, a business will need at least five trade accounts reporting to their file. The business credit score itself is calculated by using as many as 875 payments. It is important for a business owner to have those accounts report favorable payment history. If bills are paid on time, the business credit score will be positive. But if payments are made late, the PAYDEX business credit score will drop. The PAYDEX score will adjust according to how early or late the bills are paid, if bills are paid, then that business can achieve a score that is over 80. How timely bills are paid (the main indicator of the PAYDEX score) is a good indicator to lenders of how likely that business is to pay its bills at an agreed-upon date in the future. Lenders look at this score carefully when deciding whether to give a business a loan. Another important aspect of the Paydex system of which most business owners are aware is a Paydex “weighted average” score. This score gives more weight to the trade accounts that report higher amounts of credit extended and less weight to trade accounts that are reporting lower dollar amounts of credit.

This leads to a great tip. If a business owner is having any trouble “meeting all their credit payback obligations”, in other words if they know they are going to have to pay a bill late, it is important for that business to be sure to pay the “largest dollar” creditors first. This way, their reporting, which carries more weight in the business Paydex score, will remain positive. If this scenario does come about, it is always best for the business owner to contact those creditors they can’t pay and let them know that they are not being ignored. The business owner should let the creditor know that they have hit a snag and will make it up to them as soon as possible, preferably even giving a date for payment. From a creditor’s point of view, the only thing worse than not being paid what is owed to you is not even being told that you’re not being paid what’s owed to you. Experian Experian’s business credit scoring model is designed for companies that provide goods and services to small businesses. Experian’s business model has many names but is best known as Intelliscore. This model is the second most used in the business world today and is growing rapidly in popularity. Experian’s most recent score system is known as Intelliscore Plus, which they boast of as the next level in credit scoring. This method was released in 2008. Intelliscore Plus considers hundreds of variables to offer a business score between 0-100, with 100 being the highest. The 0-100 is a percentile score that reflects the percentage of businesses that score higher or lower than the specific business being looked at. For example, if the business has a score of 20, this means that company scores better than 19% of other businesses. That also means that 80% of other businesses score higher than that business. Intelliscore Plus is advertised as a highly predictive score that provides a very detailed and accurate reflection of a business’s risk. Intelliscore predicts a business’s risk of going seriously delinquent, or over 91 days late, or having a major financial issue such as bankruptcy within the next 12 months.

Intelliscore is already being widely used. Many of the largest financial institutions worldwide use it, along with over half of the top 25 P&C insurers and most major telecommunications and utility firms. Industry leaders in transportation, manufacturing, and technology have also been known to use Intelliscore as their primary risk indicating model. In performance tests it has been found that 74% of accounts found to be risky were also in the lower 20% of the credit score range. This means that Intelliscore’s lowest credit scores did indeed account for almost 2/3 of the accounts that were risky. Intelliscore now even has indicators that allow for different scoring depending on the business size. The new Intelliscore Plus has over 800 aggregates or factors that affect the credit scores. Scores are assessed on the more than 7.2 million businesses in Experian’s database. And with Intelliscore, Plus Experian is using technology such as their BizSource and TrueSearch for increased data depth and better matching of business records. Experian first takes a business and looks at data segments such as firmographics, public records, collections, and trade information, then places each business in one of three different models. The first is their Commercial Model, for small, medium, and larger businesses. Second is their Blended/ Owner Model, where the commercial data is then linked with the owner’s information. Thirdly there is the Intelliscore Plus, or their percentile score. In segmenting business records this way, Experian can use more specific scoring for each individual business. Intelliscore Plus, just like FICO, has multiple facets to the entire score makeup. The score is still based on the payment history of the business, but many other factors tie into percentages of the overall score. The historical Behavior or payment history accounts for 5-10% of the total score. Current payment status, trade balances, and percent of accounts delinquent account for 50-60% of the score makeup. The business’ credit utilization affects 10-15% of the total score. This has to do with the amount of credit that has been extended to the business in relation to the balances they currently have on those accounts.

The company profile, age of business, industry risk, and size of business assessed by number of employees accounts for 5-10% of the total score. And 10-15% of the total score is determined based on the derogatory items, collections, liens, judgments, and bankruptcies that business has. When Experian is assigning a business a credit score, they take many factors into account. They refer to these factors as predictive data and use this data to better determine a business’s lending risk. Multiple factors affect the score, including average balances on accounts, how recent are the delinquencies, what number and what percent of accounts are current versus delinquent, the percent of balances seriously delinquent, the overall utilization ratio, and any balances on leases. Firmographics is what Experian refers to as the background information of a business. This factor considers the risks inherent in the business’ specific industry and how many employees the business employs. Firmographics also considers the length of time the business has been reporting to Experian. They have found that a business with a longer-standing Experian credit file is typically less at risk of defaulting. Inquiries are also considered with Firmographics. Experian also provides consumer credit reports. They provide options for reports that reflect information about the business and the business owner called “blended” reports. They promote this as an added business, as studies have shown that consumer reports don’t offer the most comprehensive assessment of risk on their own. With blended reports Experian considers both factors from the business and from the consumer credit of the owner or personal guarantor. Factors considered are the number of accounts recently delinquent, number of derogatory payment accounts, number of accounts with 90% utilization, number of bank cards with 100% or more utilization, number of inquiries, and real estate inquiries. Experian credit reports offer many details along with their scores, including business credit summaries and key facts about the business. Each report also provides business contact information, corporate registration details, and uniform commercial code filing data.

Details relating to the business payment history are also included in the reports, including summaries of collections and payments, bankruptcy, judgment, and tax filings, even banking, insurance and leasing information. Equifax Equifax’s main business credit scoring model is the Credit Risk Score. This score was created to enhance risk assessment throughout the account life cycle by predicting the probability of a new or existing small business customer becoming seriously delinquent on supplier accounts, or bankrupt, within a 12-month period. Credit scores range from 1-100, with a lower score indicating a higher risk of serious delinquency. The score predicts the likelihood of a business incurring a 90-days severe delinquency or charge-off over the next 12 months. With Equifax, scores of 90 and above express that obligations are being paid as agreed. Scores from 80-89 indicate payments are being made 1-30 days overdue, while scores of 60-79 represent payments being paid 31-60 days past the agreed-upon due date. Credit scores ranging from 40-59 indicate payments being made 61-90 days overdue, while scores between 20-39 mean obligations are being paid 91-120 days overdue and scores between 1-19 mean obligations are being paid 120+ days past the due date. Equifax also provides a business credit score for suppliers known as the Small Business Credit Risk Score for Suppliers. This model is designed to help credit grantors improve their risk assessment and reduce delinquency rates while helping to improve profitability. The score utilizes unique bank loans, lease information, credit card data, and supplier, Telco and utility credit history, public records and firmographic data from their own Equifax Commercial database. The Small Business Credit Risk Score for Suppliers credit scores range from 101-816, with the lower score indicating a higher risk. If the business had a bankruptcy on file, they would have a 0 score. There are four major factors affecting the score.

These are how many years the business has been in business, whether there is evidence of judgments or liens, the length of time since the oldest financial account was open on the report, and whether the business has a 45% or higher trade utilization ratio. Equifax also offers a Business Failure Risk Score with many reports. This Risk Score predicts the likelihood that the business will fail or file for bankruptcy within the next 12-month period. This model helps identify businesses that pose a greater risk for failure so that suppliers and credit grantors can take appropriate actions. The Business Failure Risk Score considers information gathered from supplier trade information, firmographics, and public record information from Equifax’s Commercial database. Business Failure Risk Scores range from 1000-1880, with a lower score indicating a higher risk. With this Risk Score a 0 indicates the business has filed a bankruptcy. There are four reason codes indicating the top factors that affected the score. Unlike other risk scores, this unique score indicates the likelihood that the business will cease to exist within the next 12 months. Equifax provides many details on each business for which it produces credit reports. Each report has a profile of the company with the business name, address, and phone numbers. Inquiries the business has made into other credit is also displayed, along with the business’s credit score. Each report also lists the Risk Score and key factors affecting that score. On the reports you can obtain for your own business Equifax provides a payment index explaining the credit score breakdown. There are even graphs that track your current utilization and the number of days you paid beyond the given terms. Public records information is displayed, along with a credit report summary section including information on the number of accounts, how long credit has been active, number of charge-offs, total past due, most severe status within the last 24 months on any accounts, the single highest credit extended, the total current credit exposure, and the median and average open balances on accounts.

Equifax reports also show any recent credit activity for the business, financial information such as information on business cards, loans, and other credit extended by financial institutions. The reports also show the amount of credit usage and reflect any trending that Equifax has identified. Equifax reports provide many details for each financial account listed on the business report. The account number and current account status is listed. A breakdown of the Equifax report status descriptions is available on the table above. Each account also shows the date the account was last reported on and the date it was opened. It also lists the date the account was closed. All financial accounts listed on Equifax reports show the current credit limit for the account, the balance owed, and a full 24-month payment history is also available. Equifax also reports details on non-financial accounts. These details include account number, account type, date reported, and date opened, date or last sale and the payment terms, the high credit and current credit limit, the account balance, past due amount, and aging categories if applicable. Public record accounts report the registered name, filing date, incorporation date, incorporation state, status, registry number, and contact name and address. Each Equifax report has an additional information section with alternate company information, including DBA names, addresses, phone numbers, and the parent company if applicable. In this section they list guarantor information, comments from the business owners or credit grantors, and recent inquiries.

2c. Reporting There are three major companies that collect business information and publish it. These are Dun & Bradstreet, Experian, and Business Equifax. D&B is by far the largest, but the other two are catching up quickly. Most lending institutions incorporate the information and use the commercial scoring model that they retrieve from D&B’s database. There are a few other business credit reporting companies, but they’re not big players and a business owner won’t need to worry too much about them. These include PayNet, FDInsight, BusinessCreditUSA, and ClientChecker. Dun & Bradstreet is the most common and is used by most vendors to extend lines of credit. Landlords use them to approve office leases as well. Experian is used by many credit card companies and non- traditional business lenders. Equifax is called the “Small Business Financial Exchange” and is the most important for cash lenders such as banks. To concentrate on one and not the others is to have lopsided credibility. A business needs to build business credit with all three of these major credit reporting agencies to achieve genuine credibility. Dun and Bradstreet Dun and Bradstreet is the biggest and major business credit reporting agency. Commonly known as D&B, the agency provides information on businesses and corporations for use in credit decisions. Dun and Bradstreet is a publicly traded company with a headquarters in Short Hills New Jersey, and trades on the New York Stock Exchange. D&B currently holds the largest supply worldwide of business information, with over 200 million business records on file.

In 2012 D&B reported that 129.4 million of these records referred to active companies that were available for risk, supply, sales and marketing decisions. Another 76.7 million were inactive companies, providing historical information for file matching and data cleansing. Dun & Bradstreet has a massive presence worldwide. Of the over 2 million records they had on file in 2012, they reported 54,409,439 were from Europe while only 33,282,653 were from North America. Another 12,097,055 records were from Latin America, while only 27,451,196 records were from Asia Pacific. The lowest volume of records on file was in Africa, with only 1,184,582 records on file, and the Middle East, with only 1,008,477 records on file. Altogether, Dun & Bradstreet reported holding 206,148,055 records in January 2012. They also reported having over 1 billion in payment and bank experiences. And they reported over 159 million public records on file. D&B roots can be tracked all the way back to 1841, with the formation of the Mercantile Agency in New York. In 1933 the Mercantile Agency joined with R.G. Dun & Company and became known as Dun and Bradstreet. In 1962 D&B created the DUNS number, currently the preferred method worldwide of identifying businesses. Dun & Bradstreet offers many products and services to consumers and businesses. Some of these include risk management products such as the Business Information Report, Comprehensive Report and the DNBi platform. These provide current and historical business information, primarily used by lenders and financial institutions to assist in making credit decisions. D&B also offers sales and marketing products such as the DUNS Market Identifier Database, Optimizer, and D&B Professional Contacts, all of which provide sales and marketing professionals with business data for both prospecting and CRM activity. Just as Equifax, Experian, and TransUnion are leaders in the consumer credit reporting arenas, Dun and Bradstreet is the leader in business credit data.

Dun & Bradstreet has a proprietary DUNSRight Quality Process providing quality business information that is the foundation of their global risk solutions worldwide. The DUNSRight process was created based on four fundamental questions: is the data accurate; is the data complete; is the data timely; and is the data globally consistent. To answer these questions, Dun & Bradstreet runs data through a process called DUNSRight, in which data is collected, aggregated, edited, and verified via thousands of sources daily. Their ability to turn massive data streams into high-quality business information is one of many factors that set them apart from any other competitor. D&B first collects data from a variety of sources worldwide. This data is then integrated into their database through their very own patented entity matching system. By applying the D-U-N-S Number and using corporate linkage they enable customers to view their total risk or opportunity across related businesses. D&B then uses predictive indicators to rate businesses’ past performance and to access future risk. They are the leading provider of risk management, business information, sales and marketing, and supply management decisions worldwide. A Dun & Bradstreet office in Center Valley PA built in 2006

Experian Experian was formerly a division of TRW, an automotive electronics giant. TRW was originally founded in 1901 as the Cleveland Cap Screw Company. They started producing screws and bolts and grew to produce many parts for the aviation and automobile industry. In the early 1960s, TRW started a consumer credit information bureau, collecting and selling consumer data, and eventually became known as TRW Information Systems. TRW Information Systems continued compiling data and were the first to start offering consumers direct credit report access in 1986. In 1991, rampant problems started appearing with TRW reported credit data. Thousands of people in a town in Vermont had tax liens inaccurately reporting against them. Similar cases started appearing in the entire northeast, forcing the deletion of countless tax liens across the states of Vermont, Rhode Island, New Hampshire, and Maine Dozens of lawsuits were filed against TRW, claiming sloppy procedures to create credit files, lack of response to consumer complaints, and re-reporting previously deleted incorrect data. All cases were settled out of court. TRW then created a database known as the Constituent Relations Information Systems (CRIS). This system’s sole purpose was to gather personal data on 8,000 politicians who held opinions on TRW. In 1996, TRW was purchased from Bain Capital and the Tohomas H. Lee Partners for over 1 billion dollars by GUS plc, a private group of investors. It was then combined with CCN, the largest credit reporting company in the United Kingdom. GUS retained the Experian name for their combined credit services subsidiary. In 2004 Experian continued its growth, purchasing CheetahMail, a business founded in 1998 offering email marketing software and services.

In 1998 Experian also acquired QAS, a supplier of contact data management and identity verification solutions. As a result of their growth, Experian became the first company ever to win the UK Business of the Year award twice, winning in both 2003 and 2005. Experian continued to grow in 2005 with its purchase of PriceGrabber for 485 million dollars. In 2005 Experian also acquired FootFall, an information provider for the real estate and retail property industries. Experian also spent $330 million in 2005 acquiring LowerMyBills.com. In 2006 Experian made a big move when it announced its purchase of Northern Credit Bureaus, located in Québec, Canada. That same year Experian demerged from their British company GUS plc and was independently listed on the London Stock Exchange. Since 2005 Experian has continued to aggressively grow their corporation. In 2007 they purchased a 65% stake in Serasa, a leading credit bureau in Brazil, now the largest credit bureau in the world. Experian continued to purchase software companies that year, including Emailing Solution, Hitwise, and Tallyan. In 2010 Experian became the first CICRA licensed credit bureau to go live in India, where it continues to supply reports to the Reserve Bank of India’s (RBI) guidelines. Currently, Experian continues to grow at a rapid pace. In 2011 they acquired a majority stake in Computec S.A., a credit services provider in Columbia. They also purchased Medical Present Value, Virid Interatividade Digital Ltda, and Garlik Ltd, expanding their data and marketing reach. Experian has also become the second largest reporting agency in the business credit world. They provide business credit evaluations for over 27,000,000 small businesses and corporations worldwide. These business records are spread over 80 countries that offer Experian services. Experian’s reach is across four main geographic regions, including North America, Latin America, UK and Ireland, and EMEA/ Asia Pacific.

Experian’s headquarters are in Dublin, Ireland. They have operational headquarters in Nottingham (UK), Costa Mesa (California), and São Paulo (Brazil). Experian plc is listed on the London Stock Exchange (EXPN) and in a constituent of the FTSE 100 Index. In March 2011 Experian claimed revenue for the prior year of $4.2 million. Currently, Experian employs over 15,000 people, working in 41 countries. Experian’s main business focus is on credit information services. These services provide insight and tools that help businesses target new markets, predict and manage risk, and optimize customer relationships. Experian also offers Decision Analytics, which enables organizations with large customer bases to manage and automate large volumes of day-to- day decisions. Experian’s clients include international banks, utility companies, public service providers, and more. Experian focuses on providing quality data and analytics to businesses to help them better assess risk. They possess a massive consumer and commercial database that they manage to help businesses obtain the best and most up-to-date information. They then extract significant extra value with this data by applying their own proprietary analytics and software. Experian diligently works to maintain their worldwide notoriety and growth. Their main global focus is to increase their global reach by expanding their global network and extending their capabilities into new geographic areas. They focus on innovation and on enhancing their analytics to deliver high value to their clients. They also strive to achieve operational excellence by leveraging their global scale to deploy global products into new markets. Equifax Equifax is the oldest and largest credit bureau in existence today. They were originally founded in 1898, 70 years before the creation of TransUnion.

Two brothers, Cator and Guy Woolford, created the company. Cator got the idea from his grocery business, where he collected customers’ names and evidence of credit worthiness. He then sold that list to other merchants to offset his own business costs. The success of this tactic led Cator and his attorney brother, Guy, to Atlanta, where they set up what would become one of the most powerful industries in existence today. The Retail Credit Company was born, and local grocers quickly started using the Woolford service, which expanded rapidly. By the early 1900s the service had expanded from grocers to the insurance industry. Retail Credit Company continued to grow into one of the largest credit bureaus, by the 1960s having nearly 300 branches in operation. They collected all kinds of consumer data, even rumors about people’s marital lives and childhoods. They were also scrutinized for selling this data to just about anyone who would buy it. Throughout the 60s Equifax continued to provide credit reporting services, but most of their business came from making reports to insurance companies when people applied for new insurance policies, including life, auto, fire, and medical insurance. Almost all major insurance companies were using RCC to get information on the health, habits, morals, finances and vehicle use of potential insurees. Equifax also provided companies with services including investigating insurance claims and making employment reports when people were seeking new jobs. Back in the 60s most of Equifax’s credit work was being done by their subsidiary, Retailers Commercial Agency. In the late 60s, Equifax started to compile their data onto computers, giving many more companies access to this data – if they chose to purchase it. They also continued to buy up many more of their smaller competitors, becoming larger and attracting the attention of the Federal government. They began to earn a bad reputation for selling data to anyone who wanted it, whether the data was accurate.

Equifax was gathering details about people including their marital troubles, jobs, school history childhood, sex life, political activates, and more. There was no limit to the kind or amount of data they were collecting. Some of the information was factual, while large swathes of the rest were false; some information was literally no more than rumors. Equifax was even said to reward their employees for finding the most negative information about consumers. In response when the US Congress met in 1971 it enacted the Fair Credit Reporting Act. This new law was the first to govern the information credit bureaus and regulate what they could collect and sell. Equifax was no longer allowed to misrepresent itself when conducting consumer investigations and employees were no longer given bonuses since the negative information they were collecting, the standard practice in the past. The Retail Credit Division was charged with violating this law a few years later, causing even more government restrictions to be implemented. Scarred with a bad reputation for violations of the new credit laws, the company changed its name to Equifax in 1975 to improve its image. Throughout the 1980s, Equifax, Experian and TransUnion split up the remaining smaller credit rating agencies between them, adding 104 of those to Equifax’s portfolio. Equifax aggressively grew throughout the US and Canada, and then began growing their commercial business division across the UK. At this time Equifax started competing more aggressively with rivals Dun & Bradstreet and Experian. They then continued to grow, taking aligning with CSC Credit Services and another 65 additional bureaus. The insurance reporting aspect of Equifax’s model was phased out.

At one stage the company also had a division selling specialist credit information to the insurance industry, but they spun off this service, including the Comprehensive Loss Underwriting Exchange (CLUE) database, as ChoicePoint in 1997. Choice Point formerly offered digital certification services, which it sold to GeoTrust in September 2001. Also, in 2001 Equifax spun off its payment services division, forming the publicly listed company Certeg, which acquired Fidelity National Information Services in 2006. Certegy effectively became a subsidiary of Fidelity National Financial as a result of this reverse acquisition merger. In October 2010 Equifax also acquired Anakam, an identity verification software company. Equifax has continued to grow, now maintaining over 401 million consumer credit records worldwide. They also expanded their services to direct consumer credit monitoring in 1999. Today Equifax is based in Atlanta, Georgia, and has employees in 14 countries. They are listed as a public company on the New York Stock Exchange (NYSE) under the sign EFX. Since its inception, Equifax has operated in the business-to- business sector, selling consumer credit and insurance reports and related analytics to a wide array of businesses worldwide. Equifax reports are still commonly used by retailers, insurance firms, healthcare providers, utilities, government agencies, banks, credit unions, personal finance companies, and other financial institutions. Equifax provides business credit evaluations for small businesses and corporations, allowing them to detect early signs of trouble by monitoring key customers, suppliers & partners. Equifax offers a business scoring credit scoring model known as the Equifax Small Business Enterprise. Equifax’s model is designed for companies that provide goods and services to small businesses. Equifax sells business credit reports, analytics, demographic data, and software.

Its reports still provide large amounts of detailed information on the personal credit and payment history of individuals and businesses to indicate how they have honored financial obligations. Equifax’s source of data today is still some of the most vital information used by credit grantors to decide what sort of products or services they offer to their customers and at what terms. Equifax’s system for collecting data is NCTUE, an exchange of non-credit data including consumer payment history on Telco and other utility accounts. Since 1999 Equifax has also been aggressively growing in several other credit-related areas. It has excelled with their credit fraud and identity theft prevention products. Equifax has also started earning a major part of its revenue from services which provide consumers and businesses with credit monitoring. Today Equifax is one of the major credit reporting agencies used in many countries. Some of the countries where Equifax is mainly used include Canada, Chile, India, Mexico, Peru, the United Kingdom, and the United States.