Personal Credit Score vs Business Credit Score
Confused when faced with questions about business credit score and a personal credit score?
With more than 90% of the organizations work with debt finance, it is very important to know the difference between personal credit score and business credit score along with their importance.
Personal Credit Score
The personal credit score is any individual's credit score. It determines how much loan a person is eligible, the interest rate, the tenure, collateral requirement etc. The higher the score, the more financially stable a person is.
How is it determined
Based on your PAN or Aadhar card number and your credit history, the 4 credit reporting bureaus namely CIBIL™, Equifax, Experian and CRIF High Mark collate your credit actions and represent your credit score numerically, this would become a measure of your creditworthiness
Ranging from 300 to 850 0r 900 has the following major components or categories.
• Past performance or Payment history – The most important factor. How regular you are on your loan payments
• Default Accounts – Having very high debts or maxing out credit cards with dues continuing for many months will have a negative impact on your score
• Length of credit history – The longer the credit history, the higher the credit score
• Credit mix – With different types of loans available (credit cards, car loan, personal loans etc.)
• Recent Credit Behavior – Taking out credits within short time increases your credit risk
Business Credit Score (or) Company Credit Report
Organizations like CIBIL™, Equifax, Experian and CRIF High Mark also hold the credit score for companies, this is known as the company credit profile.
Like individuals, companies also require a credit report which is the measure of the company's financial status and financial health. It consists of details such as
• The business registration number or tax registration details
• The complete company profile including name, contact details, DIN number etc.
• It will have a detailed credit history entailing current loans, past applications, defaults, total credit etc.
• The entire loan history including details of whether the company has acted as a guarantor for a loan
Why a lender needs these details?
This report and score give the complete financial journey of a company. It decides the loan eligibility of a company. This is especially important for companies working on debt finance. This score as with individual credit score determines your loan amount, interest and tenure.
Now comes the question – do I need a company credit report?
The answer is a very big Yes! If you are a business owner it is always good to keep your personal and business finance separate. It helps in 2 ways
1. Separating debt – Your business debt is kept separate from your personal finances
2. Improvement – Monitoring your company credit on a regular basis helps in improving your credit score
Thus, be it company credit score or Personal credit score, maintaining it as high as possible will always pay dividends.