Company Reports: What Can Affect Your Credit Record?

Some moneylenders may give more weight to your financial statements and trade references; but for others, the credit report is the first thing they consider. They say company reports have become your passport to the financial world. Whether you want to take out a loan or extend it, the data in your financial report are considered one of the most crucial measures used to judge your credibility. So what could affect your credit record?

Errors in financial reports

Reporting agencies gather information about business credit histories from financial institutions and lenders, the latter being sometimes less concerned about accuracy than they should be. According to the recent estimates, the error rate varies from 3 to 25 per cent; this means that millions of people may have inaccuracies in their company reports. Even if the damage seems negligible at first glance, a minor error might cause you to pay sizeable interest rates or to be denied business credit altogether.

Therefore, it might be worth ensuring that the information which is used to formulate your credit score is accurate. You can order company reports from a reputable reporting bureau or get a subscription service that sends you a monthly credit score report. This way you may be informed about any inaccuracies in your financial information and take timely measures to have them corrected.

A poor business credit score

A credit score is known as a major statistical measure of company’s financial stability. In 1956 engineer Bill Fair and mathematician Earl Isaac developed a FICO credit score algorithm, also known as Fair Isaac Corporation’s score, to help financial institutions calculate creditworthiness of their clients. Since then most credit decisions have been based on FICO score figures displayed in company reports. They typically range from 300 to 850, with scores over 700 considered good.

A credit score shows your business performance over the entire period of time that your company has been on the business map. Moneylenders normally look at loan repayments; if you’ve got too many late-pays, extensions or defaults, it might characterise you as an unreliable money manager and granting you a loan might be a high-risk decision for them. Another factor considered is the amount of debt you’re running up in relation to your capacity to pay off a loan. If the debt-to-net ratio is 2:1, the odds are that you will be denied credit.

If this is the case with your company reports, the creditworthiness of your company might be badly affected. According to a 2010 report, around 20 per cent of applications for business credit cards initiated by small businesses were denied because of poor credit scores. Creditors are usually reluctant to take on risk and invest into companies with poor credit scores, even if a higher interest rate is at stake.

A positive credit record and good scores in particular might be the cornerstones of the entire borrowing campaign and enable you to take out a loan on more favourable terms. Checking the financial information about your business and taking actions to improve you credit score now may help you build successful business relationships in the future.