Personal Credit Score is the Tyrant in Lending

This July, the NY Times had a great article titled “Credit Score is the Tyrant in Lending”. The piece was focused on credit score in relation to consumers getting mortgages, and many of the issues are exactly the same when it comes to getting a small business loan.

Some of the quotes that hit home with us here at OnDeck:

“Yes, the banks all mouth pieties about how credit scores are just one of many factors that go into their underwriting decisions. But every day she receives notices from banks and other lenders showing just the opposite: as they fiddle with the terms for one or another of their loan products (something they do constantly, by the way), invariably, the credit score is the dominant — and sometimes the only — criterion mentioned. ”


“There are people with low credit scores who are quite creditworthy. There are people with high scores who aren’t. Treating credit scores as if they were infallible — which is what the banking industry is now doing — is beyond foolish. It is hurting the recovery.”

These personal credit score/mortgage issues are exactly the same in relation to small business lending – banks use the credit score as a hard line for providing small business loans. They don’t have an efficient system that allows them to learn the true health of a business – so they are forced to make a judgment on a very subjective number. And as a result of this reliance on credit score, perfectly healthy businesses are prevented from growing and creating jobs on a daily basis. On Deck has underwritten thousands of loans to small businesses nationwide – and we know based on significant research of our data that personal credit score is simply not indicative of the ability of a small business to repay a loan.

OnDeck judges the health of a business based on their cash flow and financial data. We have used this model to lend over $85 million to thousands of American Main Street businesses, and with each month better than the last we look forward to continuing to help small businesses grow with our small business loans.