When you submit an application for a business loan, lenders will typically check both your personal and business credit scores to assess the risk you pose. A poor personal credit score will lower your chances of approval, while a good personal credit score will increase your chances of loan approval and make it easier to secure a lower interest rate.
Whether a personal credit score is considered good or bad depends on the credit scoring model used by the lender and their own guidelines. FICO, one of the most widely used credit scoring models, has a score range of 300 to 850. A score below 580 is considered bad, while a score of 670 or above is considered good.
In Canada, FICO sells its credit scoring models to Equifax and TransUnion, the two largest credit reporting agencies in Canada. These two credit reporting agencies also have their own scoring models. Equifax uses the Equifax Risk Score and TransUnion uses the CreditVision Scoring Model. Equifax's risk score uses data from the past 81 months, while TransUnion's CreditVision Scoring Model uses data from the past 24 months. These credit scores are also purchased by websites such as Borrowell and Credit Karma, which allow users to create a free account to view their credit score and report, as well as offer loans and credit cards based on their credit history.
Minimum credit scores vary, but some online lenders will approve you for a business loan even if your personal credit score is around 500. However, traditional lenders, such as banks, may require a minimum score of around 680.
Like personal credit scores, a good or bad business credit score also depends on the credit score model a lender uses. One of the most popular business credit score models, Dun & Bradstreet (D&B) PAYDEX, ranges from 0 to 100. A good score is 80-100, while a bad business credit score is 0-49.