When applying for any type of loan—business or otherwise—generally your credit score is going to be a significant factor. Now, certainly, this is not to say that that is all there is to your application. In fact, with alternative lenders, there's more of a holistic approach when it comes to determining whether or not you will qualify for a given loan product. However, that said, it is important not only that you know your credit score, but that you have a handle on what comprises said score.
Think about your credit score as an overall picture of the way in which you manage your money and your accounts. The more delinquencies you have, the worse your score. The more prompt and diligent you are when it comes to keeping current on your accounts, the better off that score will be. So what exactly goes into the way in which the three major credit agencies (Equifax, Experian & Transunion/) come up with your score...
Factoring Your Credit Score
To understand a bit more about how scores are generated, consider the following variables:
- Payment History. This is a big one. Again, the more late payments and/or defaults you have, the lower your score. The major things that the agencies look at are installment loans, credit card debt and real estate payments. Staying current certainly helps keep that score where you want it to be.
- Credit History Length. Meaning, how long have you been working to build this credit. How long have your loans been active? How long have you been responsibly utilizing credit cards? A longer history gives the credit agencies a better overall picture of your ability to manage your accounts.
- % of Credit Utilized. This one can be a bit trickier. You don't want to use too much of the credit granted you, but then again you don't want to underutilize it either. Rule of thumb suggests that about a 5-7% utilization of your total credit is good for your overall score.
- Credit Mix. Not quite as important as the others, the agencies do like to see a mix of the various types of loansaccounts available. So having a credit card or two in tandem with a car loan is more favorable than simply having an installment loan on its own.
As we said, the credit score doesn't have to be the end all and the be all when it comes to your ability to qualify for a loan. But it is a good idea to try and do what you can to boost that score if it does fall into the lower ranges. At First Union, we'd love to discuss your entire portfolio. A bad credit score will not necessarily prevent you from getting a loan. Call today and see what we can do for you!