Personal Credit and Business Credit
How is your credit-ability?
Do you know what types of credit and funding are available to you based on your personal credit and/or business credit profiles?
In this post, we are going to put the puzzle pieces together and show you how to determine what stage of credit ability you are at, what funding vehicles are available at each stage, and how to maximize the credit building process both personally and for business.
One of the most important things I want you to take away from this post is to understand that your credit scores for both personal credit and business credit are not the only factors that banks and lenders look at.
There are other things that can trigger a denial of credit even with a 720+ FICO® score. Factors such as excessive inquiries or too many recently opened accounts or high credit utilization can be one of the things that get you denied credit.
Now when it comes to business credit scores there is also a great deal of misinformation being circulated on the internet. If you read that having an 80 Paydex® score is all that you need to get funding for your business think again.
It’s not so simple, there’s much more to the credit approval process than scores alone. While having a strong personal and/or business credit score is a great place to start, it doesn’t tell everything about you or your company to a lender.
In fact, lenders will look at your entire report which includes your credit history, types of credit, size of credit limits, inquiries, credit utilization and so on.
So, let’s dive into the four stages of credit-ability for building personal credit and business credit:
For Personal Credit – When there’s not enough information on your credit report you have what lenders consider a “thin file”. You may not even have enough activity to generate a score. This doesn’t mean you have bad credit it just means that you don’t have enough payment experiences or history on your credit report.
Did you know it can take up to 6 months of activity for FICO® to generate a score for you if you are starting from scratch? If you have been getting denied credit with a thin file it may be because the credit you are applying for requires strong scores and much more depth and history on your report.
Action Step – When you’re in the early stages of building or rebuilding your credit, consider applying for credit sources that are designed for those with little or no credit. Secured credit cards are ideal because almost anybody will qualify. If you are young than be sure to check out a student credit card since it is designed for those just starting out.
*Aim to obtain at least 2-3 cards at this stage.
Also, ask to become an authorized user on a close family member, spouse or friend’s credit card to add more positive payment history. But keep in mind that the account needs to have great history and low debt otherwise it could hurt you rather than help you.
For Business Credit – When you have no company credit file established you have no credit identity for the business. This means lenders, banks and suppliers have no way to assess the creditworthiness of your business.
Action Step – At this stage of credit ability one of the easiest types of business credit to acquire is from starter vendors. These types of vendors are ideal for companies just starting out with little to no credit. A secured business credit card is another option to consider at this stage especially if you have bad personal credit.
*Be sure to check out the five best business credit building hacks to speed up the credit building process if you’re at this stage.
For Personal Credit – If you’re in the fair credit range, it most likely means that you have some credit established but have issues bringing down your scores. It may be several missed payments, collections, or other credit baggage. Lenders typically consider you to have fair credit if you fall into the 630-679 range.
Action Step – While there are credit cards in the marketplace if you have fair credit don’t discount the existing cards that you have. Consider increasing your credit card limits to improve your overall credit capacity and credit card utilization. Also work to repair your credit if you have issues bringing down your scores.
For Business Credit – When you have 3-4 payment experiences reporting on your business credit file you are considered to have fair credit as a company. At this stage, you have a business credit rating established but may have limited payment history, credit diversity and depth on your file.
Action Step – At this stage you should focus on acquiring additional vendor credit added with retail credit as well. Remember, building business credit is a process and requires consistent action. If you haven’t read the five best business credit building hacks read it now because it can propel your company to having strong credit in a much shorter period.
*For a list of vendors and retailers that extend credit to your business at this stage check out our business credit building system.
For Personal Credit – If you’re in the good credit stage you start to have much more credit opportunities available to you. Banks and lenders typically consider you to have good credit if you fall into the 680-739 range.
Action Step – At this stage you can acquire various types of funding such as loans, personal lines of credit and credit cards with rewards and perks. With good personal credit, you can also leverage it for your startup or existing business to acquire business lines of credit, business credit cards and other business funding vehicles.
For Business Credit – As a start, a good business credit report should have 10+ positive payment experiences, 12+ months of payment history with at least one credit account reporting a $10k credit limit.
Action Step – At this stage your business may have the ability to acquire fleet cards and revolving lines of credit without a guarantor. Vendors, suppliers and retailers will most likely offer higher credit limits, better rates and repayment terms since your company has a good business credit report.
For Personal Credit – If you’re in the strong credit range the ability to get the best rates, terms and offers in the marketplace are readily available to you. Banks and lenders typically consider you to have strong credit if you fall into the 740+ range.
Action Step – At this stage you can be very selective on the types of credit and offers you are willing to accept. With strong personal credit, you can also leverage it for your startup or existing business to acquire business lines of credit, business credit cards and other business funding vehicles at the best rates and terms.
For Business Credit – What is a strong business credit report? This can be widely subjective but in my opinion, it would contain the following: large credit availability, 15+ positive payment experiences, 24+ months of payment history and a diversity of credit accounts reporting.
Action Step – At this stage your business has its own well-established credit identity. Banks, lenders, vendors, suppliers and retailers will have the ability to base their credit decisions solely on your company’s creditworthiness.
Now keep in mind, we’ve covered the 4 stages of credit ability which are based primarily on credit reports but there are many other funding programs based on other factors not related to your reports. For example, there’s business lines of credit based on bank deposits, invoice financing, asset based lending, equity financing and many other funding vehicles.
Want to maximize your personal credit and business credit ability? Complete our online funding review form. In 24/48 hrs. our underwriting team will conduct a complete review and we’ll provide you both personal and business funding projections.
*You will need to upload a tri-merged credit report which you can obtain for a $1 at http://knowmycredit.org
Ready to start building your business credit? Become a member of my Business Credit Insiders Circle and gain access to a proven step-by-step business credit building system. A system that provides you access to vendor lines of credit, fleet cards, business credit cards with and without a PG, funding sources and lenders that report to all the major business credit bureaus. Submit your name and email below for details and receive a free business credit building audio seminar ($497 value) =>
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About the author
Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for Dun and Bradstreet Credibility Corp, the SBA.gov Community, Business.com, About.com and All Business.com. His articles and blog; Business Credit Blogger.com, have been featured in ‘Fox Small Business’,’American Express Small Business’, ‘Business Week’, ‘The Washington Post’, ‘The New York Times’, ‘The San Francisco Tribune’,‘Alltop’, and ‘Entrepreneur Connect’.