How credit scores, both personal and business, affect business loan approvals

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Transcript

In this lesson, we'll be talking about how your credit scores can affect your business loan application. This particular section is regarding your personal credit scores. However, it's important to note that you may also have a business credit score depending on how long you've been in business. That business credit score for informational purposes, actually is much like a personal credit score in that you are assigned a numeric number. That number is based on how you have paid debts with various lenders as well as how you have paid your suppliers if those suppliers provide you terms when you do business with them. So always remember that a lender is likely to pull not only a personal credit score, but also a business credit score if you have an existing one.

For now though, let's talk about how personal credit scores can impact your business loan application. So how does credit work? Well, there's three main credit bureaus that your information will be pulled from. It could be pulled from one or it could be pulled from multiple Of these providers. The main three are Equifax, Experian, and TransUnion. And each of them has their own scoring methodology.

However, for the most part, those scores are pretty consistent across the board, you shouldn't see a change of a couple of hundred points across the different providers. Unless one provider for some reason has inaccurate information on you just know that they are pretty standard. And the way in which the credit scores are calculated by these different credit bureaus is also pretty standard. You should know what your credit score is going into the business loan application, there are a variety of resources out on the internet, they can provide you free access to your credit report. Also, if you've been denied credit, previously, you should be able to pull that credit report for free as well. One of the things you want to know about applying for a business loan is that marginal credit is okay.

But terrible credit is likely not going to be okay. And when I refer to terrible credit, what I'm talking about is having written Recent bankruptcies, foreclosures or some of the bigger items when it comes to your credit. At the end of the day, protecting your credit is a good thing to do, making sure you're paying on time is very important because it will keep the cost of any loans down that you get in the future. So what is a good score? Again, as I mentioned, each credit bureau has their own methodology for calculating your score. And so this can vary slightly.

But in general, anything over 800 points is considered absolutely exceptional. Anything between about 740 and 799 is considered very good. And anything over 670 all the way to about 739 is considered good. As you can see on the screen. This range starting north of 670 points is typically the preferred range for a lender. Anything below that is considered fair or very poor credit.

So things that can negatively affect your score. Obviously you need to make payments on time, the whole point of Having a loan is making your payments so that the lender can recoup the funds that they've lent out to you. So making your payments on time plays a big role. Also too many recent inquiries, meaning applying for too many loans with various lenders can affect your score. What you should know though is that if one lender is pulling your score, it won't impact it dramatically. It takes multitude of lenders pulling your score at the same time to even move your score just a few points.

A high utilization can impact your credit score. What that means is if your credit line on a credit card is $10,000, and you have borrowed $9,900, against that, you have a high utilization so that can definitely impact your car, your score. The for example, most cards have a balance that is 70% of the allow balance that is the general range for keeping your utilization in check south of or below 70%. And of course, big items such as bankruptcies and foreclosures can really impact your credit. So what if you have bad credit? Well, credit alone shouldn't get you declined.

Know that any good lender is going to look at your application across the board or as we call it globally, so terrible credit alone will likely not get you decline. However terrible credit starts you out on a bad foot, it's likely that you'll have a higher business loan rate if you have terrible credit just like in your personal loans. So if this is the case, you'll want to consider alternate lenders. These are lenders who will lend to more risky individuals based on collateral and other factors, and know that they underwrite these loans in a totally different manner.

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