What credit score do you need for a business loan?

Credit scores cause a lot of worry for first-time borrowers, often more than they need to. This lesson explains what a credit score actually is, what a business lender really looks at, and what you can do to put your best foot forward.

What is a credit score, simply?

A credit score is a number that sums up your credit report. It’s calculated by a credit reporting body using information such as how much you’ve borrowed, how many credit applications you’ve made and whether you’ve paid on time.

Moneysmart explains that depending on the agency, scores run from zero up to either 1,000 or 1,200. Higher numbers suggest lower risk to lenders.

A key detail: Australia has two main credit reporting bodies, Equifax and Experian. Moneysmart notes they can hold different information, so your score can be different with each. That’s normal and not a sign of an error.

What’s in a credit report?

Your score is the headline. The report is the story underneath. It can include:

Item	What it means
Credit accounts	Cards, loans and other credit you hold or held
Repayment history	Whether you paid on time for each month over the last two years, according to Moneysmart
Credit enquiries	Applications you’ve made for credit
Defaults	Overdue debts a provider has formally listed; Moneysmart says these generally stay for five years
Serious infringements	Where a provider couldn’t contact you; these can stay for seven years
Court judgments and insolvency	Public record items, where relevant

For business lending, lenders commonly check the owners’ or directors’ personal files as well as any business file.

So what score do you need for a business loan?

There isn’t one magic number. Every lender has its own policy, and many look well past the score to the detail. A lender considering you will typically ask:

• Are there any defaults? If so, are they paid, and how old are they?
• Is the repayment history mostly on time recently?
• Have there been lots of applications in the last few months?
• Is there a sensible explanation for past problems, like illness or a business partner leaving?

Because lenders read the detail, a middling score with a clear, honest story can be more lendable than you’d expect. And with property security, bad credit is considered case by case, as the lender has a safety net. Lesson six explains borrowing against property.

How do you check your own credit report?

This is one of the most useful things a first-time borrower can do, and it’s free.

1. Request your report from Equifax and Experian. The OAIC says you’re entitled to one free report every three months, with extra free copies in certain cases, such as if you’ve been refused credit in the last 90 days.
2. Read every line. Check accounts you don’t recognise, defaults you’ve already paid, and enquiries you didn’t make.
3. Fix errors. If something is wrong, you can ask the credit reporting body or the credit provider to correct it.
4. Note anything you’ll need to explain. A default from three years ago is much easier to discuss if you raise it first.

Want to know what your credit history means for borrowing, without anything going on your file? Start a quick enquiry. We don’t run a credit check at the enquiry stage.

What helps your credit look better to a lender?

Some things take time, but many are simple habits:

• Pay everything on time, including small accounts like phone bills.
• Slow down on applications. Several in a short time can look like financial stress. This is why our approach avoids spray and pray: one careful match beats many applications.
• Deal with defaults. Paying a listed default doesn’t erase it, but it changes how lenders see it.
• Keep your limits sensible. Unused credit card limits can count against your borrowing capacity.
• Be upfront. A short, honest note explaining a past problem goes a long way.

Our lesson on first-timer mistakes covers the “apply everywhere” trap in more detail.

What if your credit isn’t great right now?

You’re not alone, and it’s not the end of the road. Options can include:

• a property-secured loan, where the property does much of the reassuring
• a smaller amount to start, repaid well, to rebuild trust
• waiting a few months while you build a run of on-time payments

Stage 2 has a whole lesson on bad credit or ATO debt if that’s you.

Quick check: before you enquire anywhere

• Have I requested my free reports from both Equifax and Experian in the last three months?
• Have I read every line and flagged anything I don’t recognise?
• Do I know which items a lender might ask about, and can I explain each in a sentence?
• Have I avoided new credit applications in the last few months where I could?
• Is my phone and email up to date with every provider, so nothing goes unpaid because a bill never reached me?

Five ticks and you’ll walk into any lending conversation knowing exactly what the lender will see.

Curious what your credit history means for you?

It’s hard to judge your own credit file objectively. A short conversation with someone who reads them every day usually helps.

There’s no credit check to enquire, so asking doesn’t leave a mark. Your details won’t be emailed out to a dozen lenders. One real person looks at your situation, including any bumps, and explains what’s realistic in everyday language. Please be upfront on the form about any past credit issues, because honest answers are how we find a lender who’ll say yes.

Ask what’s possible, credit and all →