Farmers need to check Credit Scores and Credit Reports.
Most farmers run their operations as sole proprietorships, meaning that legally there is little or no distinction between the individual’s finances and the finances of the business. This makes a credit score a pretty big deal to lenders because they have no choice but to consider the farmer’s entire financial picture when making credit and lending decisions. Even in cases where a farm is set up as a Limited Liability Corporation (LLC), most lenders will still do a credit check on the owners and partners.
One of the best business practices farmers can pursue is to frequently check their own credit scores and credit reports. One of the best ways to check a personal credit score is to ask for a copy from the lender every time the farmer applies for a loan. The only other way is to log onto MyFico.com and pay $20-$25 for a score. The best way to check a personal credit report is to log on to http://www.annualcreditreport.com every four months and check one of the three free annual reports from each of the three major credit bureaus, Experian, Equifax, & TransUnion.
What will be found on a credit report? Everything related to past borrowing activity for the last seven years (with the exception of a chapter 7 bankruptcy which stays for 10 years). This includes all past ag loans, medical debt, student loans, car and home loans, credit cards, finance companies, past due utility bills, judgments, and liens. The point is that pretty much everything debt related is on there.
More often than not a credit report will contain some errors, some of which will impact future ability to borrow. Sometimes it’s a clerical error on the part of the credit bureau, other times it will be a case of identity theft, where a crook has used the borrower’s information to open and use fraudulent accounts. The only one who will catch these types of errors is the borrower, because the lenders and credit bureaus already think they got it right. So it’s important to regularly check credit reports and dispute errors with the bureaus when they are found. Examples of bankruptcies, judgments and liens being put on the wrong report are more common than many people think, and such an error could significantly affect costs and opportunities to borrow, which could seriously impact a farming operation.
This article is an excerpt from an article written by Luke Erickson & Ben Eborn, University of Idaho Extension. http://extension.uidaho.edu/madison/2014/01/23/farming-and-personal-credit/
Lori Scharmer, NDSU Extension Family Economist Specialist