Will Your Personal Credit Score Affect Your Business Loan Application?
Congratulations! You’ve decided to begin the process of applying for a small business loan. This is an exciting time for your new or existing company and could forecast many great things.
If this is your first time applying for a business loan, you might not be aware of the potential barriers that can get in your way. After all, receiving a business loan for your start-up or expansion can be competitive, and banks want to ensure that they trust only the best with their investments. Before you jump all in, you’ll want to have a clear understanding of the things that could qualify or even disqualify you from receiving funding.
One of these factors is your personal credit score.
If you are a small business owner in the United States, the three credit bureaus track two profiles: your personal financial history and your business credit history. Each profile plays a vital role in getting approved for a business loan. However, if your starting a new business or your existing business doesn’t have established business credit, the lender may rely more heavily on your personal creditworthiness when making their lending decision.
While your personal credit score and business credit profile express different information about you and your business, both have a substantial impact on the options available to your business and your ability to qualify for a loan.
Why Lenders Care About Your Personal Credit Score
Some business owners don’t think that their personal credit score has much of an impact when it comes to their organization. This just isn’t the case. A potential creditor is going to consider your personal credit score when making a decision to grant your company a business loan.
In general, a potential lender is going to view your credit score to determine if you:
- Have the ability to repay the loan?
- Are going to repay the loan?
- Will pay the loan even if something unexpected happens?
Lenders see your credit score as an insight into your financial health and responsibility. Unfortunately, if a lender sees that you are not able to manage your personal finances, they may assume that you are a high risk for managing business finances as well. This is especially true if you are a new business owner. Without an established business history or credit to your company’s name, the only way the lender will be able to determine creditworthiness is by accessing your personal credit score.
How is my credit score calculated?
Three primary credit bureaus generate a credit score for lenders to access. Each reporting agency uses the same basic FICO formula to score the information that they collect. They also obtain personal information such as full legal name, date of birth, employment history, address, etc. They also list a summary of information that was provided to them by your creditors. Other information found in public records like bankruptcy or judgments are also included on your credit report and factored into your score. Each time that you apply for credit is also recorded on your report.
There are primary differences in the way that the three credit bureaus review and calculate your personal credit history. For example, Transunion holds more detail about your employment information, Equifax separates your accounts that are open and closed, and Experian will record data like whether or not you are paying your rent and other bills on time. Essentially, these agencies are competitors, and lenders may choose to report to one bureau and not the other. While their data might include different results, their score is typically similar.
Importance of a Good Credit Score For Your Business
While you may not feel that your personal credit history is the best representation of how you will meet and exceed your business’s financial obligations, the need to establish and maintain a positive credit score is vital for every small business owner. Most banks and lenders take a close look at your credit score when they evaluate your worthiness as a business borrower and even consider the score in their decision-making process – regardless of how long your business has been operating.
What is Experian’s Credit Boost?-An Overview
What is Experian Boost and how does it work?
Credit scores below 650 are one of the most significant financial burdens you will face in your lifetime. Poor, or even fair, credit scores may disqualify you from qualifying for certain types of credit accounts or loans, depending on your situation. This may also result in higher rates of interest being charged. This means that if your credit score improves, you will be eligible for better interest rates and loan terms in the future as well.
So, how do you plan on improving your credit score in the future? Experian’s Credit Boost, also known as Experian Boost, is a new service that will be able to assist you in accomplishing exactly that.
Experian is one of the three major credit bureaus operating in the United States. They collect information on people from a variety of sources, including mortgage lenders, credit card companies, banks, and other financial institutions, as well as from public records and collection agencies.
In addition, the company issues credit reports, which contain information about a consumer’s delinquencies, credit accounts, and other items such as bankruptcies throughout their credit history. This will also provide consumers with a credit score, which is calculated using a proprietary formula that is specific to them. Experian is currently offering a brand new program dubbed Experian Boost, which is intended to assist people in improving their credit rating.
There have already been some positive outcomes reported as a result of the program’s implementation. According to Experian’s reports, users of Experian Boost have seen an average increase of 13 points in their FICO credit score since signing up.
Since the launch of Experian Boost, approximately 60% of its users have noticed an improvement in their credit scores. You must keep in mind, however, that results may differ from person to person. Some users did not notice any changes in their scores or their chances of getting approved, and this was due to technical difficulties. Some lenders do not use Experian credit files at all, and others do not use the scores that have been affected by Experian Boost, which is another issue.
Experian Boost – How Does It Function?
For you to be able to take advantage of this free program, you must first create an Experian Boost account. You should keep in mind that this is a separate account from your Experian account. When you sign up, you will be asked to create your own profile and to provide Experian with some personal information about yourself.
You will need to link the bank accounts that you use to pay your utility bills to the program once you have completed the registration process and have obtained your own account. If you want your utility bill payments to have a positive impact on your credit score, you must link the bank accounts that you use to pay them to the program.
Your payment history will then be transmitted by Boost to Experian, which will then use it to calculate your credit score as part of the calculation. These payments will appear on your credit report alongside the rest of the open accounts and credit lines that you currently have in place.
In particular, one feature of Boost that appeals to me is that it only reports the payment history of your bank account that has been positive. If you didn’t make your phone bill payment last year, it won’t be reported. It is this that distinguishes it from the traditional methods of calculating credit scores.
Experian Boost will almost certainly be able to work in your favor when it comes to improving your credit score because it will only show positive payments on your reports.
Why Do Employers Check Employees’ Credit? What Do They Look For?
Employers today evaluate applicants based on their previous work experience, skills, and attitude. Depending on the information contained in the candidate’s resume and the information obtained during the interview, employers can make hiring decisions in a variety of positions. However, there are some instances in which your credit score is also important in your job search process.
While potential employers cannot check your credit score in its entirety, they can obtain a copy of your credit report and use it to assess your judgment and determine whether or not you pose a financial risk to the company. Interviews are already stressful situations, so being aware of what potential employers can and cannot find out about you through a credit check can alleviate one of your concerns significantly.
Is it possible for an employer to see your credit score?
During a job application, prospective employers will not be able to see your three-digit credit score. However, they can still view a version of their credit report that differs from the version that potential lenders can view. What they can look at is a modified report that does not contain information such as your account numbers, date of birth, information about your spouse, or other information that could be used to violate the laws governing equal employment opportunities.
In light of the fact that the purpose of your credit score is to demonstrate to a lender whether or not you are creditworthy, it is unlikely that potential employers will consider it when making hiring decisions. Therefore, it is not included in the report and is not visible to them.
What information can employers access from your credit report?
Personal information such as your name, Social Security number, and address will be included in the modified credit report that is made available to potential employers only. This will include information about your incurred debt, such as credit card debt, mortgage debt, student loan debt, and your payment history for each of these types of obligations.
If this is the case, why would potential employers be interested in obtaining access to your credit report? Employers may take this action for a variety of reasons. It is possible that a credit report will reveal a lack of financial responsibility if money management is part of the job. This could also indicate financial distress, which could increase the likelihood of theft or fraud.
Employers can reduce the risks associated with the hiring process by checking off prospective employees who have some red flags on their credit reports. For example, if the applicant’s credit report shows a pattern of late payments or something more serious, employers may interpret this as an indication that the applicant lacks adequate organizational skills.
Before running a person’s credit report, it is mandatory for employers to obtain the applicant’s permission first. If an applicant is not hired as a result of the information contained in his or her credit report, the employer isIn
Essentially, a credit report can assist potential employers in determining how responsible and trustworthy you are as a potential employee. It is especially useful if you are applying for a position in which you will be responsible for managing financial information or working with sensitive customer data.
How Credit Scores are Affected by Bankruptcy, Foreclosure & More
Below we’ve outlined four issues that could cause the biggest drop in your credit score. We have also listed the average point loss for each item.
How Much Does a Bankruptcy Lower Your Credit Score?
The higher your starting score, the more points you’ll lose for filing for bankruptcy. For a person with a credit score of 680, filing for bankruptcy will lower your score by 130-150 points. For a person with a score of 780, filing for bankruptcy will cost you 220-240 points.
How Much Does a Foreclosure Lower Your Credit Score?
According to FICO, if your credit score is 680, a foreclosure will drop your credit score on average by 85 to 105 points. If your credit score is excellent, at 780, a foreclosure will drop your score by 140 to 160 points. In other words, the higher your credit score, the more your score will be affected.
How Much Does a Late Payment Lower Your Credit Score?
One late payment could have a more significant impact on higher credit scores. According to FICO data, a 30-day delinquency could cause as much as a 90- to 110-point drop on a FICO Score of 780 for a consumer who has never missed a payment on any credit account.
How Much Does a Car Repossession Lower Your Credit Score?
Having your vehicle repossessed could cause a 100-point drop in your credit score. And late payments, collections, and public records generally all stay on your credit for about seven years, according to myFICO.com.
For most people, the above issues are unavoidable but in certain circumstances, it is a choice to make depending on your financial situation. If you are swimming in debt and are debating filing for bankruptcy, for instance, you may want to consider a few things first. In that scenario, if your credit score is already low due to late payments, high debt-to-income ratio, and delinquent accounts, you could potentially improve your credit quicker by filing for bankruptcy as it would not have as big an impact on your score but would give you the fresh start needed to start rebuilding your credit.
For assistance with credit repair or counseling, contact Credit Absolute.
Bad Credit2 years ago
All you Need To Know about Bad Credit Scores in 2020
News1 year ago
Financial Complaints Soared During Pandemic, Reports Say
Bad Credit1 year ago
The General Car Insurance Review 2020
News1 year ago
Robocall Legal Advocate Leaks Customer Data — Krebs on Security
News1 year ago
Court Grants Judgment for TCPA Lawyer in Suit by Aggrieved Consumer– But RICO Problems Still Remain – TCPAWorld
Credit Repair Companies2 years ago
How to improve your credit score
Bad Credit1 year ago
How to Get an SBA Coronavirus Disaster Loan
News2 years ago
Global Credit Repair Services Market Demand and Status, Forecast 2025 | • CreditRepair.com • MyCreditGroup • The Credit People • Veracity Credit Consultants • TransUnion • MSI Credit Solutions • Lexington Law • USA Credit Repair