As much as borrowers may hate it, having a good credit score is the only way to get approved for a loan. It doesn’t matter whether it’s a personal loan or a business loan, either. Credit matters. That being said, the type of loan you want to get will most likely require a matching type of credit score. Personal loans will need a personal FICO score, while business loans will need a business credit score. In the world of business lending and commercial loans, getting a loan will require borrowers or lenders to pull up your business credit reports. These credit reports work the same way that personal credit reports work for your own private finance needs. Here’s what you need to know about business credit reports.
Instead of Experian, Transunion, and FICO, business credit scores are calculated by Dun & Bradstreet, FICO SBSS, and Experian Business. Equifax also has a business credit reporting bureau, too. Business credit reports cannot be influenced by personal credit issues, either. This is the primary reason why different companies or company branches work in the business credit reporting area. The formulas used for business credit also differ greatly from their personal credit score counterparts. Their scores have different ranges (typically 0 to 100), and they also won’t take into account factors that regular FICO scores would involve. Things such as credit usage might not matter at all, while issues such as industry risk may cause a severe hit to an otherwise pristine score.
Lenders need to have a crystal clear idea of what kind of company they are lending to in order to ensure that they don’t lose money. Business credit scores help with the process of vetting out potential borrowers by showing them an overall portrait of how business owners deal with the loans and credit they do have. These scores can show lenders how frequently borrowers have gone delinquent on accounts, as well as how risky the industry they are in is. This information is vital for lenders who are trying to figure out whether or not a company should get low rates, or whether a company should be accepted at all. Without accurate business credit scores, lenders simply can’t offer good deals on loans.
Experts agree that every business owner would be wise to establish business credit, especially early on in their path to success. The most common reason cited is because it keeps your personal credit score unharmed should things head south. It also keeps issues you may have had in your personal finance past from harming your chances at getting a well-deserved business loan. Personal credit scores also can get hurt due to borrowing large sums of money, so a business credit score can also protect against potential dips due to business-related borrowing. The bottom line is that business credit scores are good for everyone involved, and if you need help establishing credit, there’s no shame in that. It’s not an easy task to handle on your own.