Personal Credit Score is Vital to Determine Creditworthiness of Small Business Owners

personal credit score

Business credit cards have higher credit limits and come with various rewards and incentives that are oriented towards business to encourage the use of the cards. As business financing needs are always much important than personal financial requirements, it is quite logical that business credit cards have higher limits. You can use business credit cards for personal spending too. However, the practice of using business credit cards for personal expenditures is not a good habit. It is always advisable to avoid mix up of business credit with personal credit. But again, this is not an easy task because the dividing line between the two is almost invisible that makes it difficult to separate the two types of credit. Moreover, there is a close connection between personal credit and business credit.

personal credit score for business loan

Technically, there is no difference between business credit cards and personal credit cards in its working modality as both offer revolving credits to users based on identical usage regulations. Besides, business credit cards help to improve your personal credit score too. Instead, the way you use credit cards, regardless of its type, influences your credit score. It means that if you use your business credit card irresponsibly, it will damage your credit score. Moreover, when you apply for a business credit card, the card-issuing company or bank will consider your eligibility by looking at your personal credit score. Personal credit score rules supreme when judging the creditworthiness of individuals. Business owners must maintain a good personal credit score to have easy access to credit, which is very important for them to run the business.

Take care of your personal credit score

As compared to business credit cards, maintaining a good credit score with personal credit cards is easier because it is possible to plan personal spending that helps to manage credit better. Simply said, you can control your personal expenditure, which you cannot do for business because of various compulsions and business needs. Moreover, enterprises face a lot of uncertainties that compel business owners to access credit hurriedly to tide over the situation. Requesting too many credits too quickly can damage the credit score. Lenders treat it as a sign of poor fiscal management, which can adversely affect business prospects. Poor credit score can bar you from availing credit, and even if you manage to get it, the interest rate would be quite high. Business owners would do well to maintain a good personal credit score that enhances access to business credit.

See also  Digital Currency Converter: A Comprehensive Guide

Risk assessment based on credit score

Banks, credit unions, Richmond Hill mortgage broker companies, credit card companies, and other lenders would like to deal with dependable creditors only to ensure their business safety. They judge the eligibility of creditors by assessing the risk involved in lending money to them. Lower is the risk assessed by the lender higher are the chances of obtaining credit. To understand the creditworthiness of individuals, the lending companies or institutions look at Your Score and More report regarding your credit history. Higher is the credit score, more reliable is the individual as a borrower, and lower would be the interest on credit charged by the lenders. Conversely, poor credit score equates with high-risk individuals with whom lenders would be reluctant to do business. Even if they consider them for credit, they will charge much higher interest.

Have clarity about credit score

You must have a clear idea about how credit score impacts your borrowing ability by understanding what a good credit score is. A credit score is a digital representation of your credit history. It includes every credit you availed; payments made, delayed and missed payments as well as the number of credit inquiries that you made. The credit score is a three-digit number on a scale ranging from 300-850 and higher is the number more reliable is the individual to companies that offer credit.

Your aim should be to maintain a credit score not less than 580 and be as close as possible to the upper range between 700 and 850. Scores below 580 can highly damage your prospects of availing credit as lenders perceive people with such scores as high risk and would refrain from offer credit to them. The middle range of credit score between 580 and 669 slightly improves the borrowing prospects as lenders consider this group as subprime borrowers.

Beware of the negative factors that affect your credit score

See also  3 Pro Tips for Financial Planning

Your total credit is one of the significant factors that impact your credit score. Smaller the difference between the total credits and your income is, higher is the risk perceived by lenders. Your borrowing must always be considerably less than your income because then only you have better chances of paying back loans on time. The manner of making payments, whether you pay on time or delay payments or even miss payments altogether point towards your fiscal discipline and impacts the credit score. How often you seek, credit is also a factor because every inquiry sets back your credit score temporarily. It is a sign of financial instability which pulls down the credit score. Bankruptcy filing and court judgments can damage your credit score so much that you must start again to build your credit score from scratch. You also must aware that how much secure your banking apps are before you install it.

Work towards building a good credit score

Using credit cards responsibly is the most basic requirement for building your credit score. But also, you must be careful about some other factors that impact your credit score. Your payment history and the extent of credit availed matters as much as making timely payment of bills, both personal and for business. Ideally, restricting your credit card spending to 30% of your credit limit should help you to maintain a good credit score. Avoid too many credits in a short time as it damages your credit score.

Check your credit score periodically and obtain your free credit report from one of the major credit bureaus once a year to keep close track of your performance in managing credits. That should help to know the negatives that affect your credit score so that you can take action to improve it.

Facebook Comments

About The Author

Leave a Reply

Your email address will not be published. Required fields are marked *