A credit score is of key importance in a variety of your financial affairs – including attaining a new loan to grow your business.

Borrowers who have checked their credit score online may be disappointed to learn this score can be inaccurate, and affect their ability to attain new financing. This is due to differences in credit score types, and the algorithms used to calculate them. While your free credit check online may display your score as eligible for a new loan, your lender may be assessing a score that is lower by as much as 50 points.

The algorithms between the free online checks differ from the in-depth paid scores (such as Equifax Beacon) assessed by major credit report agencies such as Equifax and TransUnion.  The scores your lender views includes more detailed information relevant to your credit risk, combining multiple factors that determine the risk of extending credit.

Experian scores include:

  • Payment History
  • Risk of Default in 12 Months

Equifax Beacon, which includes:

  • Payment History
  • Use of vs. Available Credit
  • Credit History
  • Public Records
  • Inquiries
  • Risk of Default in 24 Months

TransUnion Score includes:

  • Payment History
  • Payments owed
  • Account History
  • Use of vs. Available Credit
  • Credit types
  • How often you apply for credit

The difference between free and paid scores involves taking a deeper look into the risk of an individual or business over a longer time frame – including credit inquiries. If you have recently applied for various loans, your credit score may be lower than it was when you last checked, due to the various credit searches (“hard pulls”) done by your potential creditors. These do not include “soft pulls”, such as pre-approved credit offer inquiries.

The different weightings in credit score analysis can create a discrepancy in scores between reporting agencies, and even your creditors own requirements on assessing new loans. It is important to assess various sources to determine your credit score before applying for new financing to receive the most accurate assessment and rates.