Why is optimizing personal credit so different in personal and business lending?
Optimizing your personal credit for business lending is nothing like optimizing personal credit for consumer lending. In consumer lending, creditors are mostly looking at your credit scores to easily determine if you qualify for that car loan, credit card, or mortgage. Consumer lending tends to be very cookie cutter. Have a 720 or above and you pretty much qualify for anything.
In business lending optimizing your credit report has a number of significant factors:
Factor One - Open Revolving Account Balance To Limit
On all your open revolving credit accounts (aka credit cards, home equity lines, ets.) your balance to limit per account should not exceed 45%. Therefor if you have a $10,000 limit revolving credit account you should maintain a $4,500 or lower balance. The optimal is 19% with paid current for the past 24 months. Do not maintain zero 0% balances as those do not help your history tracking or your scores.
Factor Two - Age Of Accounts
Do not close older accounts and if you have stopped using older accounts, start using them again. Any account that is older than twenty-four (24) months significantly helps your business profile while accounts newer than 24 months do not. Closing older accounts basically stop that accounts reporting for the next seven (7) years wherever they are at today.
Factor Three - Inquiries
Business credit reporting is differnec from personal credit reporting in that business lenders only report to the business credit reporting agencies when you use the account. In personal lending if you get a loan this week it will most likely show on your personal credit reports thsi week or next even if you have not use it or drawn down on it at all. Not true with business lending. With a business lender you can get an inquiry today and get approved but not use the credit line for say the next two or three months. That credit line will then not appear on your business credit reports for the next two or three months. Therefore other business lenders who see business loan inquiries on your perosnal credit reports will typically wait six (6) months so that can be sure if you got that loan or not and for how much.
Factor Four - Derogatories
Late payments, collections, judgments, banruptcies, and other derogatories that appear on your personal credit reports are only a big deal to consumer lenders for the past 24 months. After that they are less and less a concern if your past 24 months has been clean with excellent payment history. Consumer lending is short sighted. Not so with business lending. Business lenders will look back the full seven (7) years. Therefore it is a good idea to try and have all past derogatories removed from your reports. There are many methods for getting derogatory items off your credit reports we will just say that you should only agree to pay for past items if it comes with a written agreement to remove.
A Few Closing Tips
Business lenders use personal credit scores as a starting point but not a final determining factor. You can have 760 scores and still get declined if your balance to limits are over 45% or your total debt to income ratio is over 40%. In business lending using "authorized user" accounts to improve your personal credit scores is viewed as a negative and the accounts will not considered as yours.
Inside the Level4Finance business success system, you will have access to step-by-step comprehensive business credit building instruction to obtain everything you need to build and maintain strong business credit scores and to pre-qualify for a spectrum of business loan programs.