Personal Credit Scores in Business

Let's talk personal credit scores in business. Did you know that your personal credit score will affect your businesses ability to borrow money.  

When it comes to your  business whether you're a new business or an existing business with many years of sales history and lending, the bank is still going to look at your personal credit score when you go to borrow money.

Personal credit scores rank your credit worthiness based on your individual purchase history and credit history business credit  scores do similarity things for small businesses. personal credit scores can range from 300 to 850 whereas business credit scores range from zero to one hundred.

As your business grows you'll also gain a business credit score known as the SBSS.  There's a huge difference between your businesses credit score and your personal FICO score. If you try and compare the two you're probably going to get frustrated because they don't really correlate.

According to a study published in the Wall Street Journal as many as 25% of business credit reports may contain errors or missing key information, if a credit report contains these mistakes than the scores that are produced may not accurately reflect the rest of the business. 

There are some popular credit scoring services such as Dun & Bradstreet, Intelliscore from Experian, FICO liquid credit small business scoring service, and Equifax business delinquency risk score.  All of these reporting services do essentially the same thing and report on the credit worthiness of your business. 

The way that they use these business credit scores is it basically lenders and creditors need to have a means of determining how well your business repays his debts. The higher your score it indicates that your business is more likely to pay their bills on time and should increase your chances of obtaining funding. 

One of the reasons that you should check your business credit score is that mistakes happen and that wont show a true picture of your business health. Your business credit could get mixed up with another business or one of your vendors or lenders could report incorrect information. If you don't check you have no way of knowing if those things occur.

You also want to check to see if your credit score changes every time new information is reported from either your lenders or your vendors any good or bad reporting will have an impact.

There's also a risk of fraud when it comes to business credit. Fraud or identity theft is a growing problem and it's only increased since the pandemic began. You want to make sure that none of that negative information goes on your report and it helps you to look out for suspicious activity.

Knowing things that are reported is a way that you can get better financing. Just like your personal credit report and your personal credit history the higher your score the lower your interest rate you're going to pay. 

Building credit doesn't have to be difficult but it can be confusing at times. Not all the bills you pay will show up on your credit reports and any account that doesn't report, will not build help build credit. Only open accounts that will report on your business credit history and make sure that those accounts are current.

Personal Credit:

If you haven't been in business for very long more than likely the lender is only going to look at you or personal credit report. If you're going to get an SBA loan They will pull an SBSS score for your business.  If you are start up your SBSS score  will be based on your industry and the probability of default within that industry.

If you've ever been denied a loan, you have been sent an adverse action notice. This is explaining the reason why your creditor rejected your loan application. Most of the time it will include reason codes  and your lender must show up to four of these reason codes if they have decided not to approve your application. Not all of these codes are equally weighted the same and depending on which reporting agency your bank or lender uses will determine which codes are used on your report. Some of the ones that cause the biggest red flags are delinquent accounts or derogatory public records. This means that you have bills that were left on paid for 30 or more days are considered delinquent

Derogatory public records refer to bankruptcies civil judgments or tax liens. These types of records are something like not paying your water bill. The bankruptcy may have been discharged, judgement settled, or tax lien paid. If these events happened recently enough the event will still have factor on your credit scores, and will most likely be a hard no from your lending Institution.

Based on any of the reasons above your lender is going to have pause when they look at lending you money.  Derogatory public records and bankruptcies are going to be in immediate red flag because they figure if you can't handle your personal finances how are you going to handle your business finances.

The best way to make sure that you are eligible to borrow money is to keep track of your personal credit report and your business credit report and make sure that everything on there is accurate as possible.

Try to limit the amount a personal debt that you take on at any given time as well as applying for any additional debt because it could impact your business is borrowing in the future.

All of the store cards that they offer great rates or no interest for a year  sound like a really good deal, but realize every time you apply for one of those it's going to show on your personal credit report. It's also going to show the event available balances on this installment payments.

If you buy a new TV surround sound system and gaming system from Best Buy and it cost you $2,000 immediately you will have an installment loan of $2,000 with a balance of $2,000 giving you an extremely high usage rate. If in the same month you need to buy a new vehicle for your business it may affect that credit decision.

At the end of the day you have to be the one to decide what the best way to Finance on the personal and business side that makes sense for you. I wish you the best in your business!