Personal Credit

If you are like most folks, you may have a pretty good idea about your personal credit score, or at the very least, you are well aware of how this score can affect your ability to borrow and the interest rates you will be offered. If you have bought a car recently, you will know from experience that the higher your score, the lower your interest rate.

Admittedly, there are many factors that affect personal credit scores and it is often difficult to determine exactly which of these factors has caused your score to change. And you probably already know that there are three credit reporting agencies, TransUnion, Experian and Equifax, which means that you have three different personal credit scores. You can find out each of these three scores by going to www.myfico.com. (Fico.com also posts daily updates on interest rates based upon your score. For example, using their chart, you can compare interest rates and monthly payments for mortgages and car loans. It is immediately clear that a FICO score of 720-850 can save you money, whereas a score of 500-589 means that you will be paying quite a bit more in interest.)

Another key point to remember about your personal credit information, including your credit scores, is that the government has passed many consumer protection laws which give you the legal right to challenge the accuracy of the information in your personal credit reports. Regrettably, this is not true with business credit reports. There is no similar protection from the government.

Business Credit

The same credit reporting agencies that compile personal credit scores and history are key players in business credit ratings, in addition to other business credit reporting bureaus. While most of the focus is on these agencies, there are scores of other smaller ones who may be collecting and reporting data about your business credit, so do not make the mistake of assuming that only the big companies are all that you need to consider. In fact, you may find it helpful to investigate some of these smaller agencies, especially those that are industry specific to the type of business you operate. For example, some business credit reporting agencies may focus on businesses that are connected to the auto industry. If that is your business, then these might be worth checking out.

So, It's Complicated

As you can begin to see, business credit rating is far more complex than personal credit rating. The amount of information that can be accumulated and analyzed about your business is staggering, and you can probably see how easy it would be to get off track without the proper guidance from experts who understand how business credit works.

In addition to considering the above, you also need to keep an eye on compliance. In fact, one common mistake made by business owners is to overlook this requirement. Instead, they will begin seeking business credit without first making sure they are in compliance. In the next chapter, we will take a detailed look at what it means to be in compliance along with some practical suggestions about how to make sure you don't jeopardize compliance before you even get started building your business credit.