Do business lenders look at my personal credit score or my business’s credit score?
In almost all cases, business lenders will look at both your personal and business credit scores. This is done because both credit scores show your spending habits, both as an individual and as a business owner. Lenders are more likely to trust you and authorize loans in your behalf if you have good credit scores. So what is the difference between a personal and a business credit score and how are they calculated?
Personal credit scores are calculated by the “5 C’s of Credit”. These are Capital, Collateral, Capacity, Character, and Conditions. To read more about the 5 C’s, click “here.”
Business credit scores are calculated a little differently. They are calculated by three major credit bureaus: Experian, Dun and Bradstreet, and Equifax. Each of these organizations calculate business credit differently. To get a credit score from these organizations, you will have to apply for their services and provide information about your business. Lenders will often look at all three of these score, so it is in your best interest to acquire all three scores.
Experian: In Experian’s calculations, they use public records and demographic information. The purpose of including public records is to analyze the public activities of your business—essentially the public image of your business. In these public records is information like loans you’ve applied for, your payment history and trends, late payments, etc. The rationale for including demographic information is to see the history of your business—the growth of it, mainly. The credit score is based on a scale of 1 to 100.
Dun and Bradstreet: Dun and Bradstreet calculate what is considered your “risk” as a business. This risk scale allows lenders to understand what kind of borrower you are going to be. This risk is measured by a system called “Paydex.” Higher numbers equate a low risk borrower, and conversely lower numbers equate a high-risk borrower
Equifax: Equifax measures credit on a “payment index” system. It measures if your company makes loan payments on time. The range for this score is 0-100. They also have two other measurements: credit risk score and business failure score. The scale for the first is 101-992, the second 1,000-1,880. These two scores indicate the probability of your business failing and the chances of your company falling behind in payment.