Credit Scores and the Lease Approval Process
Applying for a lease is usually a customer's first contact with a leasing company, and the most crucial. You're looking for a quick, painless approval; not a long, drawn out investigation. It helps when the information gathered on your company is accurate and up to date. When evaluating a lease application, information is compiled from a number of credit reporting sources. Here's what leasing companies look for and how you can improve the accuracy of the reports that creditors see…….and achieve your goal: quick, easy lease financing.
Dun & Bradstreet Report
Dun & Bradstreet (D&B) compiles payment histories of most businesses that have trade credit. This information is presented in a Business Information Report that we use to learn more about your company and its payment history. It's a good idea to review your company's D&B report for accuracy. You can call D&B at 866 314-6335 or go to www.dnb.com to find out how to get a copy of your firm's report. D&B compiles its information on your company from outside sources as well as from phone interviews with a corporate officer. What you tell D & B, they will normally include in your D&B report, which will be available to anyone who requests a profile on your company. So it's a good idea to present your company in a very positive light when providing information to D&B. Although you don't have to provide financial data to D&B, you may want to do so if it is positive and would make your report attractive to creditors that may review it. You can provide D&B with figures over the telephone or submit financial statements on your company.
One of the most important statistics listed on your D&B report is your PAYDEX score. The PAYDEX is simply an indication of your payment performance to suppliers over a specified period of time. D&B's PAYDEX scores generally range from 30 to 80; the higher the score the better. A PAYDEX score of 80 means that all of your bills are being paid within terms, whereas a PAYDEX score of 63 may indicate that your bills are being paid 20 days beyond terms. Although D&B doesn't list the actual vendors that are reporting data on your Company, you can ask D&B to investigate any late payments that are reported by vendors that you feel may not be justified. In many cases, the vendor data reported to D&B may be incorrect. D&B would then remove this data from your report and your PAYDEX score should improve.
In general, we like to see Paydex scores above 70. However, scores below 70 don't necessarily mean that we will look negatively on an application. We just may have to dig a little deeper to find the reasons for the lower paydex score and for possible ways to overcome any negative factors that would impede our ability to provide your financing.
For more information on PAYDEX scores, go to: http://www.dnb.com/us/customer_service/paydex_tables.html#value.
Credit Bureau Reports and FICO Scores
If a business is closely held, chances are we will seek the guarantees of the owners of the business to further support our extension of credit. We will examine a credit bureau report on the individual owners to get an idea of their payment history and outstanding borrowings. There are three national reporting credit bureaus: Equifax, TransUnion, and Experian. Tiger uses Experian and generates a report that calculates a FICO (To learn more about FICO scores, go to www.myfico.com/CreditEducation/CreditScores.aspx) or credit score. Credit scores range between 330 and 880, with a higher score indicating lower risk. The score is used by most lenders, landlords, and even employers to gauge risk in evaluating an application for credit.
FICO scores will vary depending upon your payment history and your level of debt. Obviously paying your bills on time will produce a higher score. Lowering the amount of overall debt that you are carrying and especially lowering the outstanding debt relative to your credit limits will also raise your score.
When we look at your Experian report, we like to see scores above 650. A FICO score above 700 is generally considered good. However, a high credit score above 700 will not necessarily mean your application will be automatically approved. Some individuals may have very high FICO scores yet do not have a lot of credit available to them and do not own any real estate. We would want to see that you have had "comparable" (comparable to the lease amount, that is) borrowings now or in the past. If you own a home or other real estate, your application will be looked at more favorably than if you do not. Lower scores don't mean a turndown. However applications with scores below 650 may need more care and attention. We've completed transactions in which FICO scores were below 600. We just will want to know why.
A lot has been written about how to improve your FICO score. There are a few "tricks" that can be done to immediately improve your score. Yet, over time, the best way to keep your score as high as possible is to 1. Pay your bills on time. 2. Reduce your outstanding debts as much as possible. 3. Keep your outstanding debt less than 30% of your credit limits. 4. Keep the amount of inquiries on your credit report to a minimum. Whenever you apply for credit, the lender will check your report and their inquiry will be listed. The more inquiries, the more your score may be reduced.
It's a good idea to check your credit report periodically for errors. According to recent studies, almost 80% of credit reports contain errors and almost 25% have mistakes serious enough to cause consumers to be denied credit. You can go to www.annualcreditreport.com for a free, annual report. Or you can contact one of the three national credit reporting agencies:
The Bottom Line
D&B scores as well as FICO scores play an important role in evaluating your leasing application. Leasing companies rely on this information, but keep in mind that scores are not necessarily the deciding factor. Time in business, cash reserves, and management experience will also influence a credit decision. A good, experienced leasing company will discuss with you every aspect of the application and point out any derogatory information found. They will suggest ways to correct this information so your application will represent a true picture of your company. The goal is simply to approve your application as quickly as possible so you can acquire the equipment needed for your business.
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