How To Qualify For A Business Loan: A Quick Guide On Business Credit Scores

Though there are other factors that may come into play when applying for a business loan, one of the most important factors is your business credit score.  In order to get any loan, borrowers will need to show creditors an acceptable credit score.  For personal loans, lenders will typically require a good FICO score.  For business loans, most lenders will want to see a PAYDEX score, and may also require your FICO score as well.

PAYDEX VS. FICO: A Quick Introduction

FICO scores, which are typically used for obtaining personal loans, can range from 300 to 850.  PAYDEX credit scores, which are used to obtain business loans, can range from 0 to 100.  In both cases, higher credit scores will allow you to get lower interest rates and better offers from lenders.  Getting an “A” rating for your FICO or PAYDEX score can lead to better loans and lower rates.  In the case of PAYDEX loans, an “A” score begins around 80 and tops off at the maximum score of 100.

Most people make the mistake of believing that PAYDEX credit scores operate under the same rules and regulations as FICO scores, and this is simply not true.  FICO scores are influenced by a number of factors, including limit usage, payment history, and the different kinds of loans that you take out.  The only thing that influences your PAYDEX score is payment history – and that can be established with some ease.

As attractive as that sounds, PAYDEX credit scores do have one major issue that FICO scores don’t.  While you can fix and dispute FICO credit scores, a PAYDEX credit score can be permanently damaged by just a single negative mark.  As long as you can deal with business credit being less forgiving, it’s a good route to go.

Lastly, most business owners enjoy business credit simply because PAYDEX scores aren’t influenced by credit utilization like FICO scores are.  When you take out a business loan or a business line of credit, it’s already assumed that you will use the entirety of the loan.

All About The Business Credit Reporting Bureaus

There are three major bureaus that are in charge of issuing credit scores to businesses, and though there are other credit reporting bureaus that cover business scores, over 91% of all lenders will consult one of these three companies.

Here’s the scoop on each of the Big Three …

Dunn & Bradstreet – This is considered to be the top business credit reporting agency in the United States.  Also known as D&B or DUNS, this credit bureau holds the most clout with potential business lenders.  It’s so popular, smaller reporting agencies will usually get information from them.  In other words, if you had to protect your reputation with one lender, it’d be Dunn & Bradstreet.

Business Experian – Most people don’t realize that Experian has both a business and personal credit reporting branch.  Experian’s business branch is widely regarded as the second most commonly referred to business credit bureau, with only Dunn & Bradstreet beating them.  Business Experian used a nearly identical equation to Dunn & Bradstreet, which means that borrowers can expect these two business credit scores to be very similar.

Business Equifax – Equifax also has a business branch along with its more famous personal credit reporting branch.  Luckily, neither Equifax nor Experian cross-reference their information from your personal credit score.  Equifax is often used in conjunction with either a D&B or Business Experian score.