Does My Personal Credit Score Affect My Ability to Get a Business Loan?

Credit scores matter, whether you are an employee or a small business owner. Before approving any types of loans, lenders check the background and solvency of their applicants. You may suppose that your company's financials, business plan, and business credit score should suffice. However, they do not.

Generally, 650 is the watershed between rejection and approval. When your own score is lower, you are almost guaranteed to be denied regardless of the business financials. This is particularly true for bank loans, SBA 7(a) loans, and other elite options. Fortunately, credit repair companies can help you raise the total — find out more below.

How Do Personal Scores Work?

Your unique score is a universal indicator of solvency. It shows how responsible you have been with financial obligations in the past. Failure to repay loans and any delays are reported to the bureaus. The influence of violations fades over time, but they are still prolonged. Most negative information stays on the records for seven years!

When you apply for a business loan, the institution will access your history. Consumers who are careful with their borrowing, use available credit sparingly, and avoid negative events like charge-offs have good or excellent scores. Their status reflects their ability to meet financial obligations.

Why Does It Matter for Companies?

Negative events in your financial past are a deterrent for lenders, even when it is a business loan you request. This justifies checking the reports. In addition, some small companies are funded using personal bank accounts, loans, or cards of their founders.

Your company's credit file may be too thin to qualify for a loan. For startups, getting financing is difficult, at least at affordable terms. The longer you have used borrowed capital — the more willing the lenders are to accept you.

Finally, scores assigned to businesses are not attached to a particular person. As a company is passed to new owners, the files are transferred to them. At the same time, a personal total stays with the consumer as a summary of their past experience with credit.

Evaluate Your Chances

If you are planning to apply for an elite loan, such as SBA, check your own file well in advance. Even if your business fulfilled its previous obligations flawlessly, and its financial future looks bright, you may still be rejected. Such services have strict requirements, and you need a positive personal file with a score over 650 to qualify.

There are alternatives, but the rates are much less favorable. For example, you can manage to secure a personal loan online. The lenders have less rigorous requirements, and they consider a wide range of factors. On the downside, the size of interest and repayment terms will be far from perfect.

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How to Improve Your Personal Score

If you are planning to apply for business financing, check your personal score and history first. If these are erroneous, which happens more often than you may think, you have grounds for disputes. Fixing is a large industry that operates under the Fair Credit Reporting Act, which obliges bureaus to use only verifiable information.

Go to My FICO or check the score via apps like Credit Sesame. Next, go to www.annualcreditreport.com to check the documents. Download all three files. Until April 20, 2022, you can do this weekly. Consider the information from TransUnion, Equifax, and Experian. Any of the reports may be tarnished, as the agencies do not share information with one another.

Next, pore over your documents to see if there are any inconsistencies or suspicious entries. You may notice someone else's accounts, wrong amounts, or events that never happened, such as repossession or evictions. Any mistakes may be disputed formally.

Before requesting new financing, you want to be absolutely sure that your own history will not undermine the application. Your case must be solid. If the score is low but fair, it is impossible to remove any of the compromising information.

You can, however, change your financial habits and become a responsible borrower. Rebuilding history takes longer than fixing it. Depending on the number of points separating you from the “good credit” category, you may need months or even years to close the gap.

Repair Tips

The repair industry is large, and only some companies may be relied on. To find a trustworthy provider, pay attention to its BBB profile, customer feedback on websites like Trustpilot and Consumer Affairs, as well as professional reviews. It is also advisable to choose companies with a money-back policy.

Rebuilding Tips

Prior payments affect the largest chunk of VantageScore and FICO. It is absolutely crucial that all payments are made by the due date. Set reminders or automatic transfers to avoid delays. Note that lenders report late payments when they become 30 days overdue. If you act quickly and contact the provider, they may agree not to share this information.

Try to use as little of your available credit as possible. The utilization, the proportion between the balances and limits on all cards, should not exceed 10%. Thus, for someone with a total limit of $5,000, the ideal sum of balances is $500. It may be achieved by paying off some or all of the debt, or extending the available credit via limit extension, getting a new card, or becoming an authorized user on someone else's account.

The Bottom Line

For lenders, the financial past of a business owner is an important indicator of creditworthiness. Personal reports are retrieved to assess applications for corporate financing. These two histories are parallel stories, and they both matter. If your score is below 650, you should raise it before applying for credit for your entity. Every US citizen has a right to dispute incorrect information on their files.

This article does not necessarily reflect the opinions of the editors or the management of EconoTimes