Canadian Business Credit Score and Report

Written by Veronica Ott
Fact-checked by Caitlin Wood

Canadian Business Credit Score and Report

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Most consumers in Canada are aware that they have a personal credit score and report. But did you know that business owners in Canada have a business credit score and report as well? If you are a business owner in Canada, it’s important for you to be aware of, and understand how your business credit can affect the success and growth of your company.

If you’re an Indigenous business owner or entrepreneur, be sure to read this.

What is a Canadian Business Credit Score?

Business credit scores and reports measure creditworthiness, similar to the way personal credit scores do, but they work much differently meaning that your knowledge of personal credit scores doesn’t necessarily translate. Below are characteristics of business credit scores in Canada.

Business Credit Scores are Public

With personal credit scores, authorization must be obtained from the individual in question before a credit score can be checked because of consumer protection regulations. These regulations do not apply to businesses, which means that anyone can check your business credit report so long as they pay the necessary fees. Since virtually anyone can check your business credit score, it is essential that you monitor and sustain your business credit score regularly.

Considering a credit monitoring service? Click here first.

Business Credit Scores are Difficult to Build

A similarity between business and personal credit scores is that they take time and effort to build. To build your business credit score, obtain a line of credit in your business’s name, only use 20% to 30% of your available credit and always pay your bills on time or in advance. The earlier you start building your credit score, the better. It is challenging to quickly build credit for a business and you never know when you may need to use it to your advantage.

Look here more information about business borrowing using a credit card vs. a line of credit.

Multiple Credit Scores

In Canada, there are three main credit bureaus for businesses, Equifax, Dun & Bradstreet, and TransUnion. Each credit bureau uses a different method of calculating your score which means that your business will have multiple scores. In addition, the credit bureaus have different types of credit scores, for example, Equifax has a score for credit risk, business failure, and payment index.

Unlike personal credit scores, business credit scores are typically between 0 and 100. However, if the credit bureau has different types of scores for the one business, the range of your score may vary.

Trying to make your business greener? If so, check this out.

Lender Credit Checks

Unless your business has been operating for several years and has superb credit scores, potential lenders will often check the personal credit scores of business owners in addition to the business credit score. Usually, lenders will ask for a personal guarantee if you’re applying for financing for your business. A personal guarantee means that you are still responsible for the loan even though it is in the company’s name.

Look at this if you’re applying for a job in Canada that requires a credit check.

Because potential lenders will likely check your personal credit score, it is good practice to keep your personal score as high as possible. You don’t want to give potential lenders a reason to turn your business away from financing or favourable loans.

What is a Canadian Business Credit Report?

The break down of a business credit report is different than a personal credit report. Business credit reports are also more complex than personal credit reports, the subsections are discussed below.

• Business Information: The company’s legal name, address and phone number are displayed here. There is also a section with additional business information such as the number of employees and sales volumes.
• Score Summary: Using visual graphs, this section displays a brief summary of the business’s score. Below this section, there is another section which highlights details of the report such as the number of accounts, credit limits, number of collections, the number of legal items, and various other details.
• Score Details: This section deep dives into the factors that are used to calculate the credit score.
• Industry Summary: In order to better understand the company’s activity, information about the company’s industry is provided in this section as a benchmark.
• Company Details: In this section, very detailed information is provided about the business regarding specific activity such as returned cheques, accounts in collections, legal information, inquiries, and banking, among many other details.

How to Build a Good Business Credit Score

It is challenging to build credit for your business, although, if the right habits and processes are adopted early on, your business will be on its way to healthy credit. Credit scores for businesses shouldn’t be overlooked because they can help get your business off the ground and maintain a healthy status.

Measuring Business Credit Scores

Before starting to build your credit, it’s important to understand what criteria credit bureaus are looking at. In general, they aim to answer the following questions:

• What do you owe right now?
• How much credit are you currently using?
• How timely have your payments been?
• What are the industry and the age of your company?

Divide your Finances

Regardless of whether your business is incorporated or a sole proprietorship, having separate finances for personal and business purposes is a good idea. By having isolated business accounts, you will ensure that your business credit score is clean, accurate and represents the activity of the business, not your personal activity. You don’t want the activity of the business interfering with your personal score and vice versa.

Open Business Credit Accounts

Now that you’ve separated your finances, it’s time to open up credit accounts and lines of credit for your business. By using credit accounts wisely, you will be establishing your company as a trustworthy borrower. As with personal credit scores, the better you manage your credit, the more financially stable and ideal for lending you will be considered.

Using a personal line of credit for business purchases? Read this first.   

Pick Vendors Wisely

You want to pick lenders that report to the credit bureaus so that everyone will see how great you are at paying on time through your credit score and report. If you are unsure of whether or not a vendor reports to the credit bureaus, simply ask them. If you’ve already opened an account with a vendor and they don’t report to the credit bureaus, consider switching.

Which credit bureau to lenders check in Canada? Find out here.

Always Pay on Time or Earlier

As with personal credit scores, the better you are at paying on time, the better your credit score will be. The same applies to business credit scores, although, there is one catch. You can’t achieve a perfect credit score by paying on time. If you want your score to be the highest it can be, you actually have to pay earlier than the deadline. Set due dates in your calendar and reminders on your phone so you don’t forget to pay on time or in advance.

Here’s how you can rebuild your credit after a late payment.

Maintain Accurate Information

Regularly checking your credit score and report as a business will identify errors and eliminate them. This is important for your business credit score because it will reveal possible fraud that is occurring and ensure that you are not turned down by lenders due to inaccurate information. Anytime your information changes, be sure to update the credit bureaus so that people viewing your credit report will have the most up to date information.

Need to dispute an item on your credit report? Read this to know how to do it.

Make Use of Available Credit

Credit utilization is a factor that is considered in your business credit score. For your credit scores benefit, ensure that you make use of your credit as opposed to leaving it idle for an extended period of time. Although, there is a bit of a balancing act involved because you don’t want to max out your credit either. A good credit utilization rate is somewhere between 20% and 30%.

Click here to find out how the money you owe affects your credit score.  

Public Records

Credit bureaus monitor your company’s public records too, they will take note of any legal filings made in your business’s name. This includes bankruptcies, liens, lawsuits, and any other public records that highlight late or incomplete payments. Credit bureaus evaluate these factors identified in public records because they indicate risk.

Need to improve your credit score this year? Then take a look at this.

Do You Work With Other Businesses?

Because businesses aren’t protected by consumer protection regulations, anyone can check your business credit score and report. The most obvious individual that will check your business credit report is potential or existing lenders.

Other businesses can check your credit score too. Usually, they do this to determine if they can trust that you will pay them for a product or service. Businesses extending credit to other businesses cannot afford to not get paid, particularly small businesses, which is why they consider business credit scores. This concept goes both ways, if you are extending credit to another business, it is definitely wise to do a quick check up on their credit score and report.

For more ins and outs of business credit, click this link.

Final Thoughts

Business credit scores and reports are an important factor in the growth and success of your business. Not only are they beneficial for growth, but they are also a helpful tool to use when doing business with other companies and when applying for additional funding. If you’re interested in learning more about your business financing options, Loans Canada can help!