Money: Managing Your Money

Bill Knight is the Commissioner of the Financial Consumer Agency of Canada (FCAC). He lives and works in Ottawa.

Credit Reports and Credit Scores: What Small Businesses Should Know

Small business owners and the self-employed know how important credit can be for keeping a small business running. That’s why you should check your company’s credit report for accuracy once a year and why you should pay close attention to your credit score.

What is a credit report?

A credit report is a “snapshot” of your credit history. It includes information about your accounts, credit and bill payments.

What’s the difference between a personal and commercial credit report?
A personal credit report has your payment history as an individual consumer. A commercial credit report pertains to your business credit history – including such items as how long it takes you to pay your suppliers, banking information and your total assets.

Lenders must ask your permission before viewing your personal credit report but any supplier can access your commercial credit report, even without your permission.

What is a credit score?

Your credit score represents the risk you pose to lenders.

Why is a credit score important?

Lenders can use this score to decide whether or not to give you credit. They can also use it to determine what interest rate you will pay.

How can you improve your credit score?

To improve your personal score:

  • Pay your bills in full by the due date or, if you aren’t able to do this, pay at least the required minimum amount.
  • Keep the balance on your credit cards and lines of credit low. The higher your balance, the more impact it has on your credit score.
  • Reduce the number of credit applications you make. If too many people ask about your credit in a short period of time, it may have a negative effect on your score.
  • Cancel credit cards or lines of credit you don’t use. If you have too much available credit, lenders might feel that you could spend more than you could pay back.
  • Establish a credit history. You may have a low score because you do not have a record of owing money and paying it back.

To improve your commercial score:

  • Pay all accounts payable on time.
  • Increase the number of suppliers you deal with.
  • Avoid returned cheques, collection claims, or legal suits.

More information on how to obtain copies of your personal credit report and how to improve your credit score is available in a free guide offered by the Financial Consumer Agency of Canada (FCAC), called Understanding Your Credit Report and Score. To get a copy of this guide, call FCAC toll-free at 1-866-461-3222 or visit the Publications section of the Agency’s website (www.fcac.gc.ca).

CNM