Friday, December 21, 2012

Why maintain a solid personal credit score is important to your business

Nowadays, more and more people try to create their own business. This idea is attractive-it allows you to demonstrate your best features, such as intelligence, singleness of purpose, persistence, to apply your skills in practice, intelligence, and, of course, to be financially independent.

Over 70% of Americans are keen on the idea to start up a business. Since 2008, a majority of business lenders have required your personal guarantee, when you need financial support for business credit or loans, especially if you are small business owner, your affair is still growing and annually profits are less than $1 million.

Some people think that small business and personal credit should be separate. This is particularly true-such reporting agencies, as D&B and SBFE, don’t ask for your personal credit rating and history information, but famous agencies, like Experian, Equifax, require business and individual credit information to assess overall financial situation and your credit habits. Moreover, a solid personal credit score is a compulsory condition not only for new companies, today even successful firms need personal warranties in several cases.

Why a solid personal credit score is so essential for your business:

1.      With the help of a solid personal credit score, you can get financial aid to set up or develop your business. Therefore, the realization of interesting business ideas need much money, good credit score together with business plan will help you to borrow the required amount.

2.      A personal credit score of 730 or higher is ideal confirmation of your ability to pay. Lender should be confident that you will repay received money.

3.      A solid personal credit score demonstrate responsibility and show your attitude to obligations. Banks or lender’s companies never lend thousands of dollars to the person with bad credit habits.
4.      Good personal credit scores is an efficient way to save money. Although, some lenders can provide you necessary amount, certainly not for free- you will pay several thousand dollars over the loan due to higher interest rates.

5.      It provides access to different types of loans. There are special types of loans, where a solid personal credit scores is necessary for application.

6.      It will be useful even in your relations with providers or your future partners, increasing trust and reliability to you.

7.      You shouldn’t haste, when it comes to business matters. It will take you time to maintain a solid personal credit score-so, you will have enough time to develop a financial strategy or improve a business plan.

Before improving your credit score, you should know main parts, which define it:

1.      Payment history (35%) – shows your responsibility by paying bills on time. If you are late with the payment for the month and more, it will affect on your credit score because of the record in report.

2.      Debt (30%) – specialists advise to have a debt not more than 10% of your credit, if you can manage your credit and debts correctly, your score will increase.

3.      Length of credit history (15%) –the period of using loans is important for this item. Experience and ability to handle will be main characteristics for creditors. Keep open old cards with a long credit history.

4.      Avoid new credit (10%) – don’t open many new credit accounts without need, it will show your unreliability and inability to assess risk.

5.      Different types of credit (10%) - several types of credit will positively influence on your credit score. You should abandon three credit cards pro diversity -a mortgage payment, a payday loan and a credit card.
6.      If you apply for bankruptcy, you won’t get a loan during seven years.

7.      Your credit rating depends on payment of taxes-it is very essential, because banks and governments are tightly interrelated.

According to the SBA (Small Business in America), there are 27 million small business companies in the US. Such companies reduce the level of unemployment, providing 60-80% of new jobs. A solid personal credit score allows you to join them. Nevertheless, to build such score won’t be done overnight, but results and future advances cost of expectation. First of all, check your credit and get a report from three main credit bureaus: Experian, Equifax and TransUnion-to analyze current credit situation and to understand what to strive for.

Today, banks, lender’s companies, credit unions or other financial institutes have stringent requirements in comparison with foretime. A solid personal credit score is assurance for them, that you will repay received sum of money. Likewise, it is indicator of your reliability, responsibility, trust in relation to you and your business. A good credit score is a key to your prosperous future.

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