Business Vs. Consumer Credit Reports: What’s the Difference?

Business and consumer credit reports have similar purposes but measure different things. These two, don’t rely on each other. While your personal credit score measures your creditworthiness, which is your personal ability to pay back a debt. Your business Credit Reports on the other hand measures the ability of your business to meet its own financial obligations. We will be looking at each of these scores in detail.

Personal Credit

Your personal Credit Reports is what is used by a lender in evaluating whether or not you should be extended credit. It also shows how much to lend to you, and on what terms. Even though personal credit scores have different ranges, there is one standard fact. That is, the higher the score, the more trustworthy a borrower is considered to be.

Your Personal Credit Score is Determined by Whom & What?

A score is assigned to you by Equifax, Experian, and TransUnion which are the three major credit bureaus. It uses your social security number (SSN) and your credit history and all using variations of the FICO Score algorithm.

Credit scores range from 300 to 850, and the personal credit score is made up of five things:

Amounts Owed

Maxing out your credit cards and carrying a high balance on them for several months will have an adverse effect on your FICO score. Thus you should avoid maxing out your credit card account even though you have a zero balance in them. This will help in improving your credit score.

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Payment History

Your payment history to lenders is the most important factor in a FICO Score. This is your ability to make on-time payments which is premium to lenders.

New Credit

According to FICO, opening several new accounts within a short period of time increases your credit risk. It also shows you off as desperate to new lenders who may be wondering what you need numerous credits for.

Length of Credit History

Building a good credit score takes time. Thus, the longer the credit history, the higher a FICO credit score.

Credit Mix

Debts come in different forms. They include retail cards, credit cards, car loans etc. Now understand that without some of these debts, FICO may not be able to determine your score. Thus you must be responsible for using your credit cards and installment loans in order to start and build up your score.

Business Credit

Business credit is also known as trade or commercial credit score helps financial institutions in determining whether or not you are a good candidate for debt financing. A high business credit score may improve your chances of obtaining a business loan and you may likely get much more favorable loan terms. On the other hand, a low score can mean higher interest rates, and in some cases may even prevent you from being eligible to borrow.

Also, vendors and suppliers often check your business credit score when considering whether to invoice your business on a Net 30 or Net 60 basis.

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For your business credit score, an Employer Identification Number (EIN) enables the IRS and the credit reporting bureaus to track businesses. If your small business has been incorporated and has an EIN, registering it Equifax, Experian, or Dun & Bradstreet should be the first in establishing your business credit score.

Experian

Experian’s business credit score considers similar factors like Equifax with a range from 1 to 100. Experian collates data from lenders and vendors who have extended a credit line or loaned money to your business and compares all of that data to peers in your industry.

Equifax

This uses your business payment history, the ratio of available credit to utilized credit, age and size, demographics, and public records in scoring your small business credit in a range from 101 to 992 on the Small Business Credit Risk Score for Financial Services and in the range from 101 to 816 on the Small Business Credit Risk Score for Suppliers. It also takes the small business owner’s personal credit score into consideration.

Dun&Bradstreet

Dun & Bradstreet focuses on the one-year payment history of your business, a financial stress score, and other data from at least four vendors. Dunn & Bradstreet’s PAYDEX report uses a 100-point scale in ranking your business credit.

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