Here’s the question of the day, as provided by your northern Colorado CPA: Does your personal credit affect your eligibility when it comes to attaining a business loan? Well, yes and no. In short, lenders still rely on a credit check to determine eligibility for certain kinds of business loans. Plus, lenders utilize credit scores to determine the interest rate of a loan – borrowers who have better credit scores earn better interest rates on their loans. That means it’s in your best interest to keep a pristine credit record if you’re seeking loans to fuel your business. So, let’s talk tactics for attaining and maintaining a perfect personal credit score (and ultimately, the ideal business loan)…
Open Credit Accounts (and Pay Them Off)
Credit scores are compiled from your credit history, and when it comes to credit history, you want a long history of good credit. That means that you’ll need to open credit accounts and maintain them. Lenders prefer borrowers who open credit accounts and maintain those accounts for years on end. It shows a lender that you are reliable as a borrower. Open a few credit accounts, and zero out the bill every month.
Keep Credit Accounts Open
While you may be tempted to close your credit accounts while they aren’t in use, it may hinder the growth of your credit score. Once again, lenders prefer borrowers who are consistent, and it doesn’t hurt to have a credit account with a zero balance. If, however, you have a credit account that costs money to maintain, it may be in your best interest to close said account.
Pay Bills on Time
An overdue bill is a major red flag in the eyes of credit score providers. Do your utmost to keep bills paid on time. If an outstanding bill is sent to a collection agency, your credit score will take a major hit. On the flip side, if you consistently pay all of your bills, your credit score will slowly rise. Try using autopay when it’s a viable option; that way your bills are always paid on time.
Keep an Eye on Your Score
While you don’t have to check your credit score daily, it’s a smart practice to check your score once or twice per year. Mistakes happen – your identity can be stolen, for instance – and your credit score may make an odd dip. Don’t fret, you can dispute a credit score error if you catch one. However, you’ll have to be a bit vigilant to catch a credit score error.
Keep Credit Stowed Away
While it’s good practice to use your credit accounts and pay them off month after month, you shouldn’t max out your accounts. If, for instance, you open an account that has a $3,000 limit, and you run up $2,500 in credit every month, it appears as though you’re nearly maxing out your account. Instead, strive to get an increase in your limit. In the same scenario, you could bump your limit up to $6,000 (if your bank will allow it); then, if you’re using the same $2,500 every month, you’ll be using a far smaller fraction of your full credit amount. Thus, it appears that you aren’t as aggressive in your spending habits. And that’s a characteristic that lenders love. Strive to get your combined monthly credit use around 10 percent of the value of your combined credit limits. Your credit score will soar!
Your CPA at Balanced Equation
Here at Balanced Equation, your northern Colorado CPA and accounting company, we strive to empower businesses. That’s why we offer up these articles, and, of course, that’s why we provide our various accounting services. Ready to get started, or eager to learn more? Get a free initial consultation!