Just like personal credit, most companies with which you do business will be relieved by larger companies that have been around for a longer period of time and have a wide variety of lending products on multiple credit accounts. Your company s financial statements and other negative markings: judgments, liens, late payments, bankruptcies, and previous lawsuits can all have a major negative effect on your business credit rating. However, there is one very important detail to consider that goes beyond the impact of business credit on your business. This is the history of your business relationship with your lender.
The majority of business borrowers are issued loans based upon their personal credit score – not their business score. A very high personal score does not translate into good business credit. Conversely, a low personal score doesn't necessarily translate into a poor business credit profile. Quite often, there are multiple factors that work against a small business loan application.
First, a high personal score does not necessarily translate into better available credit. While it is possible to get approved for a large number of available credit accounts from a lender with a poor personal score, most business borrowers are only offered a portion of that available credit. A bank or lending institution would not deny an applicant with bad credit if they were not eligible for most of their available credit options. Lenders do not provide loans to businesses solely based on their personal score.
Second, even with the availability of many available credit accounts, a high personal credit score does not always translate into better interest rates. Your lender wants to provide you with the financing solution that is the most cost effective. Many business owners make the fatal mistake of assuming that their lender will be willing to provide them with the best interest rate available to business borrowers. If a lender provides you with the information that you need to compare different business loan options, your loan application will go through the appropriate scoring mechanism and the best available credit terms will be provided. It is not the lender's responsibility to provide you with the best loan available based on your personal credit score; therefore, do not expect this to be your experience.
Finally, some business credit lenders require applicants to disclose their financial ties to a personal credit score of a specific individual. This information is used to determine the risk level associated with lending you money. It is important to remember that all business finance decisions are made based on the business owners' overall business profit and loss in order to maintain the integrity of the company.
In addition to having a poor business credit score, you may also have problems qualifying for some types of credit cards or loans. Many banks and other financial institutions will not provide you a business credit score or loan if you are lacking a positive credit score, regardless of the size of the negative credit score. When applying for small business credit cards, it is wise to try and keep your credit score at a more manageable level. Do not apply unless your credit score is above 600. If you cannot qualify for the credit cards that are offered to you based solely on . . . . . . your credit score, many credit cards will allow you to apply without disclosing your score.
Even if you obtain a business credit card from a bank or other institution that specializes in small business lending, make sure you repay your debts promptly. Many times lenders will penalize your business credit scores by making you pay off balances that you have started to carry on credit and then adding late fees to the end of the line. If you are unable to pay off these debts, you will find that you are not only losing the opportunity to take advantage of the credit cards offers that you received, but you may also be charged a higher interest rate than you would if your personal credit scores were high. This could translate into additional monthly payments that you can do without.
When applying for credit cards that offer business credit cards, you must also keep in mind that many lenders are now beginning to accept applications based solely on your personal credit scores. If your score is below the company's minimum standards, you may find that you are not approved for the credit cards that you need. Keep in mind that this is not always the case; however, the majority of companies will turn over their rejection cases to a collection agency, which will place derogatory marks on your credit reports. In some cases, the collection agencies may attempt to contact you via telephone. The number of attempts to contact you via telephone will indicate to you whether you need to work on cleaning up your credit report to improve your score.