If you’re trying to obtain a small business or equipment loan, you probably know that your business credit score is vital to receiving the loan amount that you need. Have you considered your personal credit score, though? If you’re applying for a business loan, lenders look at both your business credit score as well as your personal.
Tips for Improving Your Personal Credit Score
Your business credit score could be perfect while your personal credit score might leave a little more to be desired. If your personal credit score is low or nonexistent, it can negatively affect you and your small business for years and can make the growth of your business stop in its tracks. In this blog, we’ll discuss some easy tips for improving and watching your personal credit score so that you’ll be sure to get the loan rate that you need for your business. Northpoint Commercial Credit is dedicated to helping our customers receive the equipment and small business loans that they need to grow and improve their businesses. Contact us today!
What is my “Credit Score”?
The term “credit score” is thrown around often these days, and it can be easy to believe that you understand what it means but you might have misinformation.Your credit score can range from 301 to 850. A credit score is an indicator of how fiscally responsible you are, meaning it reflects if you pay your rent on time, make your car payment in full, or remember to schedule your monthly student loan repayment. Generally, anything above 700 is considered an excellent or desirable credit score. Missing or deferring a payment can lower your score quickly and it can take time to bring it back to a favorable level. A banker or lender will use this score to evaluate whether or not you can be trusted with a loan. This will also determine the amount of the loan, the rate of interest, and your monthly payment as well. To ensure that you get the highest loan amount without an immense interest rate and an affordable monthly payment, it’s vital to your success to monitor your personal credit score carefully. Don’t make the mistake of not knowing your credit score before applying for an equipment or small business loan. You might think it’s higher than it is in reality, and the application process does lower your credit score by a few points, so if you have to reapply, it could lower it below the rate you wish it to be. You also may believe that the lender will only look at your business credit score, when in reality, he or she will evaluate your entire fiscal history - both business and personal.
FICO Algorithms
Further, your credit score is determined by FICO algorithms. FICO, which originally stood for Fair, Isaac and Company, was started by Bill Fair and Earl Isaac in 1956 and is a company dedicated to credit rating services. Basically, your credit score is broken down by certain percentages, the highest being your payment history. This is why it’s so important to your success in both your business and personal life to ensure that you make your payments on time. If you don’t, it truly does negatively affect your credit score and can take many months to bring it back to the score you need to obtain the small business or equipment loan that you need. Some other ways your credit score are determined include:
- Outstanding debts: this includes how much of your available credit you’ve used and how close your card balances are to their limits. The closer that the balances are to their limits, the lower your credit score will be, especially if you can’t pay them off quickly.
- Length of Time: building credit takes a long time, so if you have many years under your belt, it will reflect well on you when you’re applying for a small business loan.
- New Credit: Extremely important to note, if you open a new credit card or purchase a new car and have monthly payments, it will negatively affect your credit score. Also, hard inquiries (such as a lender investigating your credit history) will also lower your credit score. While it won’t lower it a huge amount, it can drop your score below a certain bracket, which can mean your loan payment could be much higher than expected.
- Types of Credit: There are many different types of credit, and some of them are more desirable than others. We can discuss this more in depth at a later time, but for example, a mortgage is better than a high interest credit card. A bank or lender will evaluate how many different forms of credit that you have.
How Do I Boost my Credit Score?
So how can you improve your credit score? It takes a lot of time and there is no quick fix, but here are some easy suggestions to follow:
Pay Your Bills on Time
This seems like a no-brainer, but forgetting to pay your car loan or ignoring your monthly credit card payment only hurts your credit score and drive your monthly payments up. Your payment history accounts for 35 percent of your credit score, so if you do happen to miss a payment, don’t ignore it. We all forget sometimes or life gets in the way, but if you’re thinking of applying for an equipment or small business loan, a missed payment can derail your plans for months.
Check Your Credit Score
There are many different ways to check your credit score, but it’s important to note that the more that you check your credit score, it can lower or negatively affect it. Make sure that when you do check it, there aren’t any errors or issues. If there are, it could mean that your credit score could be raised.
Use Your Credit Cards
This may seem a little counterintuitive, but use your credit cards! This is beneficial to your credit score and will only help your business. Ideally, having two or three credit cards that you are paying off every month will grow your credit score the fastest. Don’t close unused cards either. It may be extremely tempting, especially if you’ve recently paid off some outstanding debts that have been haunting you and you only want to get rid of the card. Closing the account won’t take it off your score, so change your mindset and start making small purchases on it to help to grow your credit score.
Boosting your personal credit score will only help your business equipment loan process. At Northpoint Commercial Credit, we’re dedicated to helping our customers achieve their business goals. If you’re searching for a small business loan or an equipment loan with low payments and interest, contact us today.