New Business Credit Line
In today’s post we are going to share the top five credit report issues that we see on an ongoing basis that trigger a denial for a new business credit line. After reviewing hundreds of credit reports each month for pre-qualification there are certain patterns that stand out when it comes to those who don’t qualify for business credit lines.
Now I’m not talking about the typical triggers for a denial of credit such as low credit scores, derogatory items, open collection or a recent bankruptcy. What we’re going to share with you are the not so obvious issues that come up during our pre qualification reviews.
After reading this post you will have an in depth understanding into our underwriter’s world and what it is they look out for during a review. Did you know getting pre-qualified for funding is based on a lot more than just credit scores?
Time and time again you’ve heard me talk about having a 680+ credit score to pre-qualify for our business credit cards that report only to the business credit reporting agencies. What prompted me to write this post was to go more in depth since credit scores are simply a benchmark number but not the only factor that underwriters look at.
In fact, there are many business owners we’ve seen throughout the years with over 700 credit scores get rejected for funding (C3 Rating). A C3 ratings classification is an underwriter’s rating defined as a non-funding projection. This means the applicant will not qualify for business funding anytime in the near future.
So, why would a business owner with a 700+ credit score get rejected (no funding projection) for our business credit lines program? Here are the top 5 credit report issues that may prevent you from getting pre-qualified for business funding.
1) Too Many Recent Inquiries – When a pre-qualification results in a non-funding projection because of too many recent inquiries, this indicates you have shopped around for credit too much.
If you have multiple credit inquiries prior to submitting your tri-merged credit report to us for pre-qualification it may trigger a C3 rating. Just remember, incurring several inquiries in a short period of time does represent greater risk in the eyes of a bank or lender that’s why our underwriters may rate you a C3.
So, to avoid this issue don’t go shopping around for credit and open a few new accounts on your own and then expect to submit your credit report and pre-qualify for a new business credit line. You simply won’t qualify. The purpose of applying for business credit through our funding program is to maximize the amount of business credit lines you can obtain in a period of 14-20 days.
2) Too Many Recently Opened Accounts – When there are too many new accounts opened it’s seen as a higher risk to a lender or bank because of the possibility of becoming overextended, which can then lead to late payments or defaulting on the new accounts.
When our underwriters review a tri-merged credit report for pre-qualification and sees multiple inquiries and new accounts opened they see this as a red flag and they know that a lender, bank and card issuer’s underwriter will as well.
We’ve also seen at times those with thin credit files open various new accounts to build enough depth to pre-qualify for our business credit card program but still end up getting no funding projection (C3 rating).
The reason for this is the history on those new accounts is not long enough to provide sufficient payment and account history to demonstrate positive payment behavior on those new accounts.
Usually those new accounts need to age 6-12 months before submitting a credit report again for pre-qualification for new business credit lines. Remember, this only applies if you have very thin credit and working to build up some depth on your report.
Be sure to check out our personal credit lines program if you need to build up depth on your personal credit file.
So, if you want us to raise the maximum amount of small business credit lines possible for your business don’t open up new accounts prior to pre-qualification. Chase went on record stating its underwriters are more likely to deny an application for a new Chase credit card if an applicant has opened more than five new accounts in the last 24 months — even with stellar credit.
3) Credit File is Too Thin – If you’re just starting to build or rebuild your personal credit, you most likely have what’s known as a thin credit file. Did you know you can have a 720+ credit score but still be unable to pre-qualify for business lines of credit? This happens because of a lack of history, few credit accounts and/or new accounts just recently opened.
In the case of qualifying for business credit lines, a thin credit file is not something you want to have. If you don’t pre-qualify for business credit lines due to thin credit, you may have to go through the first stage of funding which is building depth on your personal credit through our personal funding program.
On the personal side we can get you installment loans, bank lines of credit and personal credit cards which will give you access to capital to grow your business while simultaneously building up depth on your personal credit file.
How do you know if you have a thin credit file?
All you need to do is submit your tri-merged credit report for business funding pre-qualification. In 24/48 hrs. we’ll let you know what types of funding you pre-qualify for. If you don’t qualify for our business credit lines program due to thin credit you may pre-qualify for one of our personal funding programs.
Remember, having a thin credit file is not something you’re stuck with. Getting personal lines of credit through our funding program would be the stepping stone to build depth on your credit and get you in a position to qualify for business credit lines in the near future.
4) High Credit Card Utilization – Many times a pre-qualification review comes back with a funding projection but with credit issues that must be resolved. In this case, the most common issue is high credit card utilization on one or several credit card accounts.
This is not necessarily a denial but rather a funding projection with conditions that must be met prior to moving forward with funding.
For example, a pre-qualification comes back with a projection of up to $50k in business credit lines but with credit issues that must be resolved first. The resolution requires the 2 credit cards with 75% utilization to be paid down under 50% utilization without increasing any other card balances.
Once this resolution is met than the funding process can begin. Keep in mind in cases like this where a paydown is required the proof of paydowns must be submitted along with our funding agreement.
Now don’t make paydowns on credit card balances prior to submitting your pre-qualification. The reason is you want our underwriter to determine which paydowns if any are necessary prior to moving forward with funding. Remember, a pre-qualification is free and does not trigger a hard inquiry to your credit because you are the one providing us with the tri-merged credit report.
*We do have a C2 paydown program that funds up to $5-$15k in paydowns to those who qualify.
5) Overuse of Authorized User Accounts – When someone adds you as an authorized user it can help boost your credit scores if the account has a decent credit limit, solid payment history and a low credit utilization ratio.
But, did you know being added as an authorized user on too many accounts can hurt you rather than help you when it comes to getting business credit? In fact, when the authorized user accounts reporting on your file are the strongest accounts you have, and your primary accounts have very low credit limits than most likely you’ll be rejected for business funding.
It’s important to understand underwriters pay attention to your primary accounts and are fully aware of authorized user accounts and why they’re used. So, don’t overuse authorized user accounts thinking that boosting scores alone are what get you qualified for business credit lines. They don’t. Credit scores are simply a benchmark and not the primary determining factor.
Well, there you have it. Five major credit report issues that may cause you to get rejected for a new business credit line. Now that you know what factors may trigger an underwriter to issue a non-funding projection (C3 rating); take the proper steps so you can get pre-qualified for business funding today.
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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’.