By Lucas Miller
Credit scores are the beginning and end for entrepreneurial ventures. If your score is good, it’s a launching pad from which you can spring to success. If your score is bad, it can mean that your ideas are stillborn before they ever get a chance.
Things are rough out there.
Banks are approving a small percentage of loan applicants in general, and those seeking small business loans are no exception. There’s ebb and flow to how banks make these decisions, but having a bad credit score or red flags in your credit history is a sure-fire way to disqualify yourself.
Given how important credit scores are, it’s remarkable how few people truly understand them, or use them to their advantage.
If this sounds like you, read on.
How Do Credit Scores Work?
FICO, the Fair Isaac Corporation, is the body that oversees the creation and management of credit scores. Those scores are processed and generated by the three major credit reporting agencies, or credit bureaus, in the United States.
Equifax (the largest), Experian (the oldest) and Transunion (the other one) keep track of your score and release it to you (and others) upon request. The law of the United States entitles you to an annual report from all three at no cost. Scores are measured on a scale from 300 to 850 – bigger numbers are better. These scores are compiled to form your cumulative credit report.
These three credit bureaus have been around for a long time – much longer than credit scores in fact. The youngest of the three has been in business since 1970, and the oldest reaches all the way back to 1899. In an ever-changing, Darwinian economic landscape, these bureaus have kept adapting to markets, maintaining stability in even the most challenging times.
As ominous as they can seem to your small business, they aren’t out to get you, and they’ve been around long enough to be widely respected. Having access to a credit score from all three every year is a tremendous resource, and having the reports generated for free is icing on the cake.
Business Credit Scores
Just like individuals, businesses have credit scores as well. Business scores use a different scale, from 0 to 100, and there are no laws entitling you to access. This means there are fees associated with getting an up-to-date report on your business score. Also, they’re public information, which means that anyone willing to cough up the fee can see what your business score is and get sensitive history, like if your business has ever filed chapter eleven etc.
Though personal and business scores are measured differently, using different sets of rules, banks and other lenders will use both to determine eligibility for a loan. If you have a stellar business credit score and a garbage personal one, or vice versa, you can’t use one to hide the other.