Credit guru Thea Dudley has spent more than 30 years in LBM credit management. Now she’s here to answer your credit and collection questions. Got a question for her mailbag? Contact Thea at theadudley@charter.net.
Dear Thea,
I received a credit application with a signed personal guarantee. My sales rep told me that even though the PG was signed, the customer didn’t want us to run a credit report on him because he didn’t want it to hurt his credit score. How do I get credit information on the guarantor if I can’t run a report to check the credit. Why even sign the personal guarantee at all?
Signed, Not So Guaranteed in Greenwood
Dear No Guarantee,
That is the equivalent of someone coming to your birthday party, giving you a present, and never allowing you to open it. You just have to sit there, staring at it. Wondering what you would find if your were to open it.
It is a ridiculous and confusing thing to do. It pisses me off, actually. What ARE you supposed to do with a signed PG that has a gag order on it? It’s like owning costumer jewelry: It’s nice, but has no value and can be easily disregarded.
What am I supposed to do with this feel-good gesture? What message is the customer telling me? “I will give you my personal guarantee, but I don’t want you to look any closer at me?” To my cynical credit manager mind it screams “I have terrible credit. I know I have terrible credit, but an using this technique as a bluff.” The customer gave you what you wanted or needed, their personal assurance that if anything goes wrong, you have their signatures a form of comfort (I refuse to call this security as there is no guarantee I will collect any money from this).
The argument f “I don’t want you to run a personal credit report on me because it will impact my credit score” is folklore. Passed down from one ill-informed person to another. How personal credit is reported, scored, and impacted is, for the most part, a mystery to most people.
Several years back, I had the opportunity to spend some time with a rep from Experian. She did a fabulous breakdown of how various credit inquiries impact a person’s credit score. It gave some great context to the impact triggers and taught me how to combat the particular argument No Guarantee is facing.
Credit cards of all kinds—bank credit cards, has cards, and department store cards—all have a higher point impact on a credit score. The more credit cards a person applies for, the more impact it has. The running of a report by a trader creditor has little impact. It is what is know as a “soft hit.” Typically when a trade creditor pulls a personal credit report, it is in conjunction with a business credit report, and they are tied together.
Overall, inquiries to a credit score account for only 10% of the overall score and the impact is based on the hit and number of hits. Credit history and amount owing account for 65% of the overall score, rounded out by length of credit history (15%) and the final 10% is mix-use revolving and installment.
So when a customer or rep trots out the old, tired, and misinformed argument about not wanting to have an impact to their credit score, I go into “captain credit mode, education version” and walk them through it. If they still push back and stand firm with their no run condition to their PG, then take that into consideration when making your credit decisions.
After all, if someone is coming to your birthday party and was nice enough to bring a present, they should be okay with you opening it.
