Although similar on the surface, personal credit and business credit are different in many ways. Some of the differences between personal vs. business credit include:
- What your business credit score is used for
- What your business credit score looks like
- How your business credit score is calculated
- What your business credit report looks like
- Who can access your business credit report
What is your business credit score used for?
Personal credit is based on your personal financial history and demonstrates how reliable you are with your personal finances. Your personal credit score indicates to lenders how likely you are to pay your bills on time. A good personal credit score helps you qualify for financial products such as personal credit cards, car loans, and student loans.
In comparison, business credit is directly tied to your business’s financial history. Your business credit score demonstrates whether your business is a good candidate to lend money to or do business with. Your business credit score indicates to lenders, suppliers, and other vendors how likely you are to pay your business-related invoices and bills on time. A good business credit score helps you qualify for business loans, lines of credit, and trade credit from lenders and suppliers. It can also help you secure low-rate business loans, along with more favourable repayment terms for small business loans and other financial products.
What does your business credit score look like?
Personal credit scores range typically range between 300 and 850. This range may differ between credit bureaus. The higher your score, the lower amount of financial risk you pose for lenders. By improving your personal credit, you want to get your personal credit score as close to 850 as possible.
On the other hand, business credit scores in Canada vary between the two main credit bureaus. TransUnion’s business credit risk score ranges from 400 (poor) to 800 (excellent). Equifax provides four separate scores that each provide specific information:
- Credit Information (CI): This score is a general measurement of your commercial credit file as it relates to delinquency, and ranges from 0 to 70. A low value indicates good credit history, while a high value indicates bad credit history.
- Payment Index (PI): This score is a measurement of your business’s payment habits, and ranges from 0 to 99. The closer your score is to 0, the better your business is at paying creditors on time.
- Commercial Delinquency Score (CDS): This score predicts your business’s likelihood of severe delinquency, and ranges from 101 to 662. The higher your score, the less likely your business is to be delinquent.
- Business Failure Risk Score (BFRS): This score predicts your business’s likelihood to cease operations within the next year, and ranges from 1001 to 1722. The higher your score, the less likely your business is to fail.
Managing these different scores can be difficult for any small business owner. That’s why Thinking Capital and Equifax have teamed up to create the Small Business Grade. The Small Business Grade is a simple metric that helps you understand your business credit health. Like grades on a high school report card, your Small Business Grade appears as a letter score from A to E. The higher your letter score, the stronger your business credit health is.
How is your business credit score calculated?
Canada’s national credit reporting agencies, Equifax and TransUnion, each calculate personal credit scores in slightly different ways. Each credit bureau has multiple scoring algorithms, which is why you might see a different personal credit score reported by each bureau. In general though, the main factors that they use to calculate your personal credit score are:
- Payment history
- Used credit vs. available credit
- Credit history
- Public records
- Credit inquiries
In comparison, Equifax and TransUnion calculate your business credit score using a wide range of traits about your business and its financial history. Again, each credit bureau has its own scoring algorithms and calculates your score in slightly different ways. Variables used to calculate your business credit score include:
- Payment history
- Lawsuits, liens, and judgments
- Credit utilization
- Public records
- Company size
- Industry risk
Although many of these factors are similar to those that impact your personal score, some are unique to business credit scores.
What does your business credit report look like?
Your personal credit report, which you can access from Equifax or TransUnion, includes four main types of information:
- Identifying information: This includes your name, date of birth, current and previous addresses, Social Insurance Number, telephone number, and current and previous employers
- Credit accounts and history: This includes information about trade lines (such as credit cards, mortgages, car loans, or other lines of credit) that you’ve established with lenders; credit limits, account balances, and payment history are all included here
- Inquiry information: This includes information about companies who have pulled a copy of your report
- Public records: This includes items that may impact your creditworthiness, such as bankruptcies, collections, and judgments
In contrast, your business credit report is much more comprehensive and may look different depending on which credit bureau your report is from. Equifax’s business credit report includes the following details:
- Business information: This includes your business name, address, incorporation information, employee size, and sales volume
- Score summary: This section summarizes the financial risks your business may pose for lenders and suppliers, including how likely it is that your business will pay bills on time and how likely it is that your business will be delinquent
- Report highlights and alerts: This section summarizes your business credit accounts, balances, and limits, along with any late payments or legal items that are on your business credit file
- Industry trade details: This includes information about trade credit accounts you have open with suppliers, such as number of accounts, balances, repayment term details, and total amounts past due
- Banking report details: This includes information about financing accounts you have open with banks, such as number of accounts, types of accounts, balances, loan details, and total amounts past due
- Collection details: This includes information reported by third-party collection agencies regarding your business, such as collection claims reported, the creditors who have initiated claims against your business, the amount of each claim, the amount paid by your business, and remaining balances
- Legal details: This includes information on legal suits and judgments that have been filed against your business, along with other legal information about your business
- Inquiry details: This section provides a list of recent inquiries that have been requested on your business within the last 24 months
As you can see, your business credit report has a wealth of useful information that can be used to assess your business credit and financial health. Equifax has a sample business credit report that you can look at to see what information is available on Canadian small businesses. Their business credit report user guide provides more details on how to walk through your report.
It’s helpful to review your business credit report on an annual basis. But reviewing this report regularly can be extremely time-consuming and expensive. A quick and easy way to monitor your business credit health is to access your Small Business Grade dashboard. This free dashboard shows you the top factors that are impacting your business credit health, along with tips on how to improve it. You can also receive monthly alerts to stay updated on how your Small Business Grade and your business credit health are changing.
Who can access your business credit report?
Your personal credit score and reports are safeguarded by consumer protection regulations. Because of this, you must authorize a credit inquiry before another party can check your personal credit score. Here’s an example: when you apply for a mortgage, your bank or mortgage broker will need your permission to access your personal credit report and check your personal credit score.
In contrast, anyone can access your business credit report, as long as they pay the necessary fees to Equifax or TransUnion. This is because consumer protection regulations don’t apply to businesses. When you apply for financing or trade credit with lenders or suppliers, they will often pull your business credit report to evaluate whether your business is creditworthy and able to repay debts on time. Because lenders and suppliers will look at your report before working with you, it’s important that you monitor your business credit score and work towards building a high business credit score.
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