How your personal credit score can impact your small business financing options
When applying for small business financing, your personal credit score matters more than you may think. In fact, your personal financial situation often impacts your business financing opportunities.
For example, if you are trying to apply for small business financing but you or a business partner have racked up hundreds or even thousands of dollars in unpaid bills, it can negatively impact your ability to qualify for small business financing.
Before you apply for a small business credit card or loan, it’s important to understand how your personal credit score can affect whether or not you get your financing request approved.
A higher personal credit score is better
Your personal credit score is an important indicator of your financial responsibility. A good credit score ranges from 660 to 799 and an excellent score is from 790 to 850. You are more likely to get approved for a business loan, as well as have better financing terms and lower interest rates if your credit score falls within these ranges.
A credit score of 650 or lower can impact your credit card and small business loan request. For example, you may get approved but not get the credit limit or loan amount that you need. There is also the potential that your request could be denied. If you have a lower personal credit score that is impacting your small business, there are things you can do to increase your score.
Begin to build up your personal credit score
If your personal credit score is lower than you’d like, you can begin to build your score with a few tips.
- Reduce late payments. Your personal loans can affect your credit score. Making sure your recurring monthly payments, like your mortgage and car loan, are paid on time tends to impact your credit score more. Setting up automatic payments can help ensure you don’t miss a bill.
- Get accounts in good standing. Prevent damaging your score by paying off any past-due bills. For instance, if you have a lower personal credit score, it may be due to an outstanding credit card bill you are unaware of. Although the bill may be minimal, it can show up on your credit report and impact your personal credit score. Paying off the balance will help give your credit score the boost it needs.
- Pay down your debt. A high balance on your credit card can be a red flag for lenders. It’s best to use 10% to 30% of the total credit you have so you can pay down as much debt as possible. The more your credit card utilization rate goes down, the higher your credit score will be.
- Don’t take on new debt. If you are trying to build up your personal credit score, it’s best not to take on new debt. It can increase your debt obligation, making it harder to pay off existing debt. It can also impact your ability to qualify for a business credit card with a low interest rate.
Check your personal credit score on a regular basis
Each year, you can receive one free credit report. Make sure you check your report at least once a year to make sure there aren’t mistakes that could impact your score.
A credit monitoring service can help you monitor changes to your report and score throughout the year. Northwest Bank offers Credit Sense* — an app that can help you check on your personal credit score in real time. The app also recognizes when your spending patterns change and can alert you to potential impacts to your score.
In addition, there are personal credit scoring agencies like Dun & Bradstreet, Experian and Equifax that can help you monitor your score. If you are interested in a free business credit report, look into Nav and CreditSignal.
Your personal credit score can have a significant financial impact on your small business. Contact a commercial banker today to see how they can help you build your credit score.
The Authors
Dawn Sassman
Treasury Management Representative, AVP
LinkedIn Email
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