Changing your business name can be a lot of work, and, quite frankly, a hassle. But can it also put your business’s credit history at risk?
Kimberly Wilson is about to find out. In 2006, she started First Step Therapy, a counseling and training business, and grew it into multiple locations. A few years ago she took a hiatus from that business to earn her doctorate degree, and now she’s ready to relaunch her business. She has chosen a new name that reflects her new vision for the company. It will be called First Step International Consulting & Counseling Services and will offer training for individuals, businesses, and professionals.
However, she’s worried about what will happen to her business credit when her name changes. “I am concerned that if I retain the same federal tax ID but change the name, I will lose my business credit rating,” she wrote in an email. “How do I prevent that from happening?”
Wilson built a positive business credit history in her first business. She established business credit by using trade credit—purchasing things she needed for her business, such as supplies or printing—with payment terms of net 30 or net 60. She paid those bills on time, and as her business credit scores improved, she was able to access even more credit. Eventually, she used business credit to finance computers and other equipment.
Older Is Better
Wilson is right to be concerned about keeping her credit history, since age is a factor that often affects business credit scores. Scoring models often evaluate age in a few different ways:
- Age of the business—How long has the business been open?
- Time in file—When was the first account opened?
- Age of accounts—What is the average age of all accounts?
Since small businesses often fail in their first few years, businesses with older credit histories benefit from well-established credit histories.
The good news is that Wilson doesn’t have to sacrifice her business credit history when she changes her business name. But she’s smart to be proactive, because by doing so she is more likely to ensure her complete credit file will follow her business.
Steps to Take
If you find yourself in a similar situation as Kimberly Wilson, here are several steps you can do to help the process move smoothly:
Submit a name change to the Internal Revenue Service if necessary. You’ll find instructions and guidance on the IRS website.
Update your name with state and local agencies as required. If you have registered your business with your state Department of Corporations, for example, and/or you must have a local business license, you may need to update your business name with either or both.
Notify your creditors. Let your creditors know about your name change so when they report your account in the future, it will be reported under your new business name. Hopefully this will also help associate your old credit history with your new business, although that is not guaranteed. Do the same with companies through which you process payments, such as credit card processors, your bank or credit union, etc.
Notify the credit bureaus, as necessary. We asked the major commercial credit agencies to clarify their policies and procedures regarding a business name change, and here are their responses:
- Dun & Bradstreet does not require business owners to notify them of a name change unless it involves a change of ownership. If it does, visit Dun & Bradstreet’s free company update page here.
- Experian recommends small business owners visit BusinessCreditFacts.com to update their reports.
- Equifax does not require a business owner to report a name change. As long as the business uses the same credit accounts and does not use a different tax ID number, the reporting members will report the credit history using the new name. The business credit report will also reflect the previous name (similar to how a former name is reflected on an individual’s credit file).
- LexisNexis does not require a business owner to report a name change.
“Information on small businesses is in constant flux as they change or add locations, evolve into new entity types (e.g., from sole proprietor to LLC), change leadership, grow their assets, and more,” says Ben Cutler, Senior Director of Small Business Risk with LexisNexis. “It’s even common for a small business to change its DBA and/or its name. But these activities leave ‘footprints’ in the data ecosystem, and LexisNexis Risk Solutions relies on its Big Data technology and sophisticated, statistically based record linkage models to uncover and combine these footprints across billions of data records.”
Check and monitor your business credit reports. Review your business credit reports before your name change to see which accounts report, then continue to monitor them afterward to see whether those accounts are reported under your new name. If not, you can contact your creditors and ask them to make sure your accounts continue to be reported under your new business name.
There are many more steps you need to take to successfully navigate a business name change, but with the right planning, you should be able to keep your credit history intact.