In commercial lending, a personal guarantor can be the deciding factor between moving forward with a deal or walking away. A strong guarantor can provide the assurance you need, especially when a business has a limited credit history or operates in a high-risk industry.
But, how do you know if a guarantor is truly creditworthy?
Credit screening for guarantors is essential, but is a single business credit report enough, or do you need to check multiple credit bureaus to be safe?
The Importance of Credit Screening for Guarantors
Guarantors serve as a safety net, stepping in to fulfill financial obligations if a business defaults on a loan. Because of this important role, you need more than just a name and signature. Credit screening for guarantors helps you evaluate guarantor creditworthiness. A business credit report provides the data you need to evaluate whether a guarantor has the capacity (and history) to back a business loan if needed.
Bureau Credit Reports
A single-bureau credit report provides data from just one of the major credit bureaus. These reports include essential information such as the guarantor’s credit score, credit account history, outstanding balances, payment timelines, and any derogatory marks like bankruptcies or liens.
Single-bureau reports are a quick and affordable way to conduct an initial risk assessment. In straightforward lending situations, like small credit limits or customers with whom you have an established relationship, a single-bureau report may provide sufficient information to proceed.
However, these reports have limitations. Not all creditors report to every bureau, and each credit reporting agency uses slightly different sources and metrics to produce a credit report, so a single source may not provide a comprehensive picture.
Multi-Bureau Credit Reports
Multi-bureau credit reports compile information from two or more major credit reporting agencies, offering a broader and more detailed view of a guarantor’s financial status. These reports are particularly useful in high-stakes transactions or when the guarantor’s creditworthiness could make or break the deal.
When it comes to single vs multi-bureau credit reports, checking multiple reports offers greater assurance.
Why Credit Data Varies Between Bureaus
Each credit bureau maintains its own database and receives information from different creditors. Not all lenders report to all three bureaus, and some may report on different schedules. This variation leads to differences in what appears on a report pulled from Experian versus one pulled from Equifax.
These inconsistencies are why relying solely on a single bureau can present blind spots.
A guarantor might appear stable on one report but show signs of financial distress on another. Choosing a multi-bureau approach reduces the chances of missing important details that could affect their ability to meet their obligations.
Balancing Cost, Risk, and Efficiency
Choosing between single vs multi-bureau credit reports comes down to balancing cost, speed, and the level of risk involved. While multi-bureau reports may carry a higher upfront expense, the value they offer in risk reduction can far outweigh the cost, especially when there’s a big deal on the line.
Credit screening for guarantors should always be aligned with your organization’s broader risk management strategy. Whether you opt for a quick single-bureau snapshot or a more robust multi-bureau profile, the key is to match your screening depth to the nature and size of your credit exposure.
Best Practices for Report Selection
To streamline the process and reduce guesswork, you should develop a decision framework for credit report selection. This might include criteria such as loan size, industry risk, customer or guarantor history, and transaction complexity.
You also need to comply with the Fair Credit Reporting Act, which requires you to obtain written permission to run personal credit checks and have a business reason for doing so.
Get Business and Personal Credit Reports
Selecting the right type of credit report is pivotal. When deciding between single vs multi-bureau credit reports, consider the risk involved, the amount of information required, and the long-term implications of your decision.
Partnering with a trusted provider ensures that the credit information you receive is current, reliable, and formatted for easy analysis-helping you make faster, smarter decisions.
To improve your credit screening for guarantors, contact Command Credit. You can pull on-demand business and consumer credit reports from one or multiple agencies without a long-term subscription. Pay as you go and get instant downloads with Command Credit.