Credit Report and Credit Score Analysis - Page 2

1. Data Repositories & data collection

There are three repositories of credit history in the United States that store data on the credit and payment history of all individuals – these are Experian, Transunion and Equifax.  Each of these repositories collect data from lenders who extend credit to individuals – lenders report on every kind of credit extended to individuals like:

-  Revolving loans:  these are credit facilities where in a set credit limit is established by the lender and the borrower can borrow up to the limit, pay it down and borrow from it again.  Credit cards and charge cards are revolving credit facilities.  There are however some credit cards like the American Express that requires the payment of the entire amount outstanding at the end of the month – this kind of credit card would not be classified as an revolving loan (although even American Express has separate accounts like sign and travel and other flexible payment credit cards allow the payments over time and these are classified as revolving lines of credit.)

-  Installment loans:  these are credit facilities where the lender extends out a total loan for a set time period and the borrower pays back a fixed monthly payment every month and cannot draw down again.  Car leases and personal loans are examples of installment loans.  Auto loans while classified as installment loans may be reported under a separate heading of Automobile credit.

-  Mortgage loans:  as the name suggests these are classic mortgage loans that lenders give to homeowners when they purchase or refinance a mortgage.
 
-  Home Equity loans:  HELOC’s as they are generally known are reported separately from mortgages since in a HELOC the borrower has the ability to tap into the line of credit at a later date whereas in a traditional mortgage they do not.

Also collected by the data repositories are the payment histories on each of the credit accounts – lenders report typically at the end of a month, the balances due on each credit account, the timeliness of payment, the balance available on the line.  Thus the repositories have all the information about the line of credit between the lender and the borrower and they use all the information they have to come up with a credit score.

2. What is a good credit score?

While each lender has their own internal requirements for minimum and optimum credit scores, the generally accepted norm is the higher your credit score the better your chances of getting a business loan.  Credit scores range from 400 to 850 with the average credit score in the United States currently at around 675.

When looking at business loans lenders usually require a credit score of at least 650 to 660.  If your credit score is more than 680 you have good chance of being approved; If your scores is above 700 your chances of approval improve dramatically.  We must keep in mind that credit scores are one element of the loan package and just because the business owner / partner has a relatively low credit score does not automatically preclude them from getting a loan.  Many times even if the credit score is below 650, if there is a lot of collateral that the bank may consider that as an offsetting factor to the low credit scores and still approve the loan.  To view a sample personal credit report and understand the information presented go out our section entitled Analysis of a sample credit report. 

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