If you’re not familiar with business credit reports and scores, you’re not alone. In fact, many business owners don’t even know that they exist.

Business credit reports and scores are some of the most important pieces of information about your business that lenders will access and review as they consider whether to approve you for traditional or alternative financing. Even if you’re not in the market for financing now, it’s important to understand how business credit reports and scores work, as they’re used in a variety of different ways throughout your business. For example, many insurance providers evaluate a business owner’s credit as well as the business’ credit to determine rates on commercial insurance.

Now that you have a general understanding of why reports and scores are important, let’s get into the details.

Business Credit Reports

The minute you obtain any type of credit in the name of a business that has a federal tax identification number—also known as an employer identification number—credit bureaus begin to develop a business credit report on your company. To build a comprehensive report, bureaus will comb public records and other financial data to figure out things about your business’ background, such as ownerships, subsidiaries, partners, bankruptcies, legal judgements, debt and collection history. Any personal debts, lines of credit or credit information that a business owner has will never be included in a business credit report.

When a business receives a loan or line of credit payment history, details of the financing and other factors are added to the credit report. This information is then used by business credit reporting agencies such as Experian and Equifax to generate a business credit score.

There are two major differences between business and personal credit reports. First, business credit reports aren’t free. In fact, they’re quite expensive, reaching into the hundreds of dollars for a single pull. Second, business credit reports are accessible to anyone, meaning anyone who is interested and willing to pay for access—competitors, friends, family members, strangers—can see your credit report.

Business Credit Scores

Like a personal credit score, a business credit score is a numerical representation of a business’ payment history. Generally, business credit scores range from zero to 100.

There are several factors that may be used to calculate a business credit score, including payment history, age of credit history, company size, industry risk, and debt and debt usage. However, because each credit bureau uses a different scoring model, each of these factors may carry different weight or importance with a bureau. Generally, the most important factor when it comes to business credit scores is payment history. In fact, some credit scores are almost solely calculated on this information.

Just like personal credit scores, the higher your business credit score, the more access you’ll have to financing options and better interest rates and loan terms. To even be considered for financing, most lenders are looking for construction businesses to have a credit score around 75 on a scale of zero to 100. (See “How to Boost Your Business Credit Score,” below.)

Check It Out

Lenders will check at least one of a business’ credit reports before considering extending any type of financing. A good business credit score and a clean credit report not only make the financing process easier for business owners but also increase approval odds, so before seeking capital, make sure to request your business credit report, to ensure that your business credit profile is accurate and free of mistakes.