Starting Your Own Business? Make Sure You Check Your Credit (2024)

It’s official, you finally decided to take the leap into entrepreneurship and start your own business. Everything seems to be great, however, you need to have your new business venture funded. There are different funding options available and in order to get financing for your business, it is important that you have a good credit score.

While your business credit and personal credit are different and you may think that to get funding for your business, lenders will pull your business credit. In many cases, your personal credit is pulled especially when you are just starting a new business. But what does it mean to have good credit and what is a good credit score?

The importance of understanding how your credit score is calculated

Most credit score operate within the range of 301 to 850. The lower the number, the worse your credit is.

• Excellent Credit: 781 – 850
• Good Credit: 661-780
• Fair Credit: 600 -660
• Poor / Bad Credit: below 599

There are many different credit scores available to lenders, you need to know what these are and know which one(s) your lenders is using so you can analyze your score. Most lenders are using some version of the FICO score, although some are slowly starting to use the Vantage score. Some entrepreneurs assume that because they pay their bills on time every month their credit is good. But that is not always true.

There are many factors that go into calculating your credit score. Credit scores can be affected by numerous factors including payment history, the amount owed, types of accounts opened, length of credit history, and more. By keeping tabs on these factors over time, you can set yourself up for success financially in the long run.

The Growing Importance Of Credit Monitoring

But there is a looming danger to your credit score that you know about, but you may not be doing ENOUGH about it! And that danger Is identity theft.

Identity theft has been becoming more sophisticated and widespread every year! That’s why its become so important to utilize a credit monitoring service.

Credit monitoring is playing a bigger part in obtaining financing. It takes the guesswork out of wondering what the lender will see when they pull your credit. It also enables you to keep track of your credit report and receive updates on any changes to it. Taking proactive steps in monitoring your credit score can help you protect your finances, manage debt, and stay informed about fluctuations in your credit score.

However, you need to check your credit score frequently. We used to advise clients to check their credit reports quarterly. But with identity theft on the rise, you need to be more proactive.

How To Read Your Credit Report

Your credit report consists of four sections and it’s wise to understand these sections and what they mean.

These sections are:

• Identifying information
• credit history
• public records
• and inquiries.

Identifying Information

The information is there to basically identify you, take a look to ensure that everything on there is correct and there are no spelling errors etc.

Credit History

The credit history section will identify the different creditors and how you have been paying on that line of credit. A potential lender can usually see 2 years of payment information on each account. Again, make sure the info listed here is correct. Dispute anything that is incorrect. Make sure to check all 3 credit bureaus.

Public Records

This is where tax liens, bankruptcies and judgments will show up.

Inquiries

You want to be careful in choosing who you apply for credit with. To many inquiries will bring down your credit score. Not all banks/finance companies will finance a start up business. Even if you have excellent credit! Verify that they work with startups before you give them your social security number!

Financing a Startup Business

While having good/excellent credit is ideal when applying for a loan for your business. It’s not always necessary. There are different options available for you if you have bad credit. These types of financing are usually asset-backed such as equipment leasing and factoring.

At the end of the day, every creditor will determine the amount of risk they are willing to take. So even though you may think you have bad credit or your credit score is not as high as you want. That may not necessarily stop you from getting financing to start your new business.

The growing trend in business and business funding especially when trying to do business with a manufacturer is for them to check your personal as well as your business credit. Mainly personal credit when there is no business credit to check. Again it is important to make sure you know what your credit looks like on all 3 credit bureaus. Contact the lender and find out what kind of risk they allow and what score constitutes a good score for them. Once you know this, it can help you with getting money to finance your business.

GET A COPY OF YOUR CREDIT REPORT HERE