Ask Opportunity Fund: All About Credit Reports
Our lending experts are here to answer your toughest questions about small business financing. For a small business owner, credit can make or break their chances at success. If you’ve ever been confused about credit, you’re not alone. Here’s what you need to know about credit reports.
Many people think they can’t understand credit. Libby Morris, Senior Operations Director at Opportunity Fund, shares her insights on credit and lending with this Q&A about credit reports.
Q: How can borrowers get their credit score and reports?
A: The best way to get credit information for free is annualcreditreport.com. Even though they don’t provide a credit score without an additional fee, borrowers can get important data.
Credit providers are mandated to offer a copy of the credit report they used in the approval or denial decision to all applicants.
Q: How can borrowers dispute inaccurate information on their credit reports?
A: Read the credit report line by line. Look for anything suspicious or inaccurate, especially for common names or family members with the same name.
Go directly to the credit bureau’s website to dispute any inaccuracies. The credit provider has a time frame to respond to a dispute. The credit provider can choose to respond and provide proof that the disputed information is true. Most of the time, the credit provider won’t respond. This is how a borrower can successfully remove negative information from their credit report.
Q: What are some resources borrowers can use to repair their credit?
A: The most efficient and direct way is to research each bureau’s resources for credit management. They have a real stake in meeting the needs of borrowers and they emphasize transparency.
Q: How does FICO score factor into the loan process?
A: Most lenders use FICO as the key factor on credit applications. Bankruptcies and late accounts like a phone bill can bring a FICO score down significantly. These things can cause most lenders to decline a loan application.
At Opportunity Fund, We use a borrower’s credit report more as a tool to better understand the customer than as the main factor in a credit decision. We look at all the pieces of credit history and evaluate each one. If a late account somewhere in a borrower’s history seems reasonable, like collections from the library, we don’t use that in application process. We use a borrower’s credit report more as a tool to better understand the customer than as the main factor in a credit decision.
Q: What is the difference between a hard credit pull and a soft credit pull?
A: A hard pull shows up as an inquiry on a credit report. It can impact a credit score, especially for borrowers with thin credit. It tells a lender how often a borrower asks for credit. For example, a borrower buying a house might apply for 10 different lines of credit over 30 days. That has the same impact as if the borrower applied for five lines of credit over the same time period.
A soft pull happens when lenders inquire about credit without impacting FICO score. An example of a soft pull is a pre-approved credit card offer in the mail. A credit provider, like Capital One, pays Experian for a list of borrowers that meet specific credit criteria to create the soft pull.
Q: Credit information has a lot of jargon. How can borrowers find and understand key terms on their credit reports?
A: Each of the three credit bureaus — Equifax, TransUnion, and Experian — have definitions on their websites. Borrowers should take time to read through their credit report with the help of the definitions provided by each bureau.
Q: What are the differences between the three credit bureaus?
A: The main differences are based the data each bureau gathers. For example, a loan from Opportunity Fund might show up on a borrower’s Experian or TransUnion report. Each bureau’s reports should be accurate, but their data format or reporting dates can be different.
Q: What are some things that borrowers should know about the loan process in regards to their credit?
A: Borrowers should know that any lender will inquire on credit and most are very score-driven. The information in the credit report won’t matter as much as the score it creates. During the credit process, lenders have access to view your complete report and they will ask you questions. Borrowers can help themselves by already knowing the answers.
At Opportunity Fund, we require borrowers to personally guarantee their loans. This usually helps the borrower’s credit score, but if they inquire about an additional loan like a mortgage, a personally guaranteed loan on the credit report can make the mortgage officer reduce the amount the borrower might be eligible for.
A lot of business loans don’t show up on personal credit reports. Our mission-oriented lending is based on transparency in the small business lending world, as part of the Small Business Borrower’s Bill of Rights. We would like all business lenders to report on credit, because it would allow access to sustainable lending for all borrowers in general, but especially for small business borrowers.
This article originally appeared on the Opportunity Fund Small Business blog at opportunityfundloan.org.
For information about Opportunity Fund’s small business loans, please contact us at 866–299–8173 or loans@opportunityfund.org. For questions about your existing loan or other customer service questions, please contact us at 866–299–8173 or sbhelp@opportunityfund.org.
Opportunity Fund is California’s largest and fastest-growing nonprofit lender to small businesses. In fiscal year ‘16, we made $60M in loans to help more than 2,200 small business owners invest in their businesses. Opportunity Fund invests in small business owners who do not have access to traditional financing. As a founding member and signatory to the Borrower’s Bill of Rights, we believe in the important role small businesses play in our community and the economy, and we aim to help owners financially succeed.
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