Credit is used to determine if an individual can borrow money with the promise of repayment in the future. At the Small Business Assistance Corporation, we work with our clients to understand their credit score and how it affects the lending process.
There are some major differences between personal credit and business credit, and it is extremely important for small business owners to understand how these scores are calculated in order to build both credit scores. Although personal and business credit are scored differently, you are able to build or rebuild them in the same way: you will need to use your credit regularly and responsibly.
Personal Credit Scores
Personal credit scores on the FICO scoring model range from 300 to 850. The score is made up of five key factors: payment history, account usage, length of credit history, credit mix, and new credit.
Your personal credit score can come from installment accounts such as mortgages, auto loans, and student loans and from revolving accounts such as lines of credit and credit cards. If you are not currently sure what your credit score is, you can request your free credit report from all three credit agencies (Equifax, Experian, and Transunion) from https://www.annualcreditreport.com/index.action.
Business Credit Scores
Your business credit score can be ranked on a scoring model of 0 to 100 or FICO’s Small Business Scoring Service (FICO SBSS) model of 0 to 300. The factors that make up your business credit score are payment history, amount of debt, new credit, credit mix, and average length of credit history.
The business score can come from installment accounts such as small business loans and mortgage loans for commercial property as well as revolving accounts such as lines of credit and credit cards that are for business use.
What If I Don’t Have a Business Credit Score?
The Small Business Assistance Corporation works with many start-up entrepreneurs who may not have a business credit score yet. Sometimes installment and revolving accounts in the business name will still show up on your personal credit report. Even if you don’t have a business credit score, we can work with you to review your personal score, help you develop a plan for improving your credit if needed, and verify that you will be able to repay your business loan in the event that the business is unable to do so.
Understanding your personal and business credit scores and taking steps to improve them can have a positive impact on your small business. Do you have questions or concerns about your credit scores and how they will impact your loan application? Contact the SBAC team today!