BACK

Your Business Credit

How to check a potential client’s credit score

Summary

If you’re considering extending credit to a new small business, you can check their owner’s business or personal credit report. Here’s how to do it.

The editorial content below is based solely on the objective assessment of our writers and is not driven by advertising dollars. However, we may receive compensation when you click on links to products from our partners. Learn more about our advertising policy.

The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired. Please see the bank’s website for the most current version of card offers; and please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

Dear Your Business Credit,

I am thinking of taking on a new client at my small business. He would like us to extend credit to his small firm.

How can I check his credit score? – Steve

Dear Steve,

You’re smart to do your homework before extending credit. Nothing is more of a headache and challenge to cash flow for small-business owners than collecting from clients who don’t pay on time.

See related:How to check a small business credit report

How to check a small business’s credit score

Checking a potential client’s credit score is very easy. The three major credit bureaus each enable you to do this.

  • Experian’s business credit scores.
  • Equifax’s business credit reports.
  • TransUnion’s business credit risk scores.
  • In addition, you can check your client’s business credit score at Dun & Bradstreet.

It probably is not necessary to check all four, so I would pick whichever one seems most user-friendly to you.

Now here’s the challenging part. The vast majority of small businesses in the U.S. are nonemployer businesses. This is what the government calls firms that have no employees other than the owners. They may be run by a single individual or one or more partners.

When you need to check a client’s personal credit report

Many owners of these businesses have not set up a formal business entity and instead operate as sole proprietors, doing business under the owner’s name, rather than forming an LLC or corporation.

Sometimes this is because the owners are new to running the business and are not sure they want to commit to doing so for the long term.

For instance, a professional who lost a corporate job and is consulting until he finds another one might not form an entity.

In other cases, the owners prefer to operate the business informally. Sometimes, they don’t want to invest the time and money in setting one up.

If that’s the case with this client, you will be hard pressed to find information on their firm’s credit score.

You may need to check his personal credit reports instead.

Tip

Tip: Experian has published a helpful article on how a sole proprietor’s credit is evaluated by lenders that is worth reading.

Before you pull someone’s consumer credit reports, make sure you know the rules for doing so, as per the Fair Credit Reporting Act.

As Experian noted in a recent article, these are the circumstances in which you can secure someone else’s credit profile:

  • In accordance with the potential borrower’s written instructions.
  • In response to a court order or federal grand jury subpoena.
  • To manage the risk of current or potential credit or insurance accounts the potential borrower has initiated.
  • For employment purposes, with the potential borrower’s written permission.
  • So a potential investor may assess the risk of a current obligation.
  • In connection with a potential borrower’s application for a license or other benefit granted by the government, when the law requires consideration of financial responsibility.
  • In connection with a business transaction the potential borrower has initiated.
  • In connection with a child support determination, in certain situations.
  • In connection with a credit or insurance transaction not initiated by the potential borrower, when the lender has extended a “firm offer” of credit or insurance and certain restrictions are met.

How to ask a client permission to check their credit

If you think other customers may request credit in the future, the simplest way to address this is to have your attorney draft a form for them to sign that gives you permission to pull their credit report or buy a boilerplate version from a site that sells business forms.

Just be careful when you extend credit and trust your instincts. Never extend so much credit that you would not be able to pay your bills on time or at all if a customer was late in paying you.

What’s up next?

In Your Business Credit

What products and services does Square support?

Square supports a wide array of products and services, but not all of them. Before using Square, make sure to read the fine print and understand Square's limitations.

Published: November 12, 2018

See more stories
Credit Card Rate Report Updated: April 22nd, 2019
Business
15.32%
Airline
17.50%
Reward
17.56%
Cash Back
17.60%
Student
17.79%

Questions or comments?

Contact us

Editorial corrections policies

Learn more

Join the Discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company’s business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.