How credit affects business loans

Your credit affects nearly everything you do these days. A good credit history and FICO score can mean the difference between qualifying for a business loan, mortgage, car loan, or any other type of loan.

Your own personal credit will also affect your business loan. When it comes to business loans, your credit will affect not only whether or not you can obtain a business loan. Obviously, you have to have excellent credit to get a business loan, but your credit score will affect other aspects of your business loan as well. Some of these include:

• Interest rate. You may qualify for a business loan, but your credit score will also affect your interest rate. Generally speaking, the better your credit score, the lower your interest rate will be.
• Collateral. If you have a high credit score and excellent credit history, you may not have to provide collateral for your loan. The same holds true for a co-signer.

Lenders want to make sure you are not going to default on your business loan, so they look at the personal credit history of the person or people applying for the loan.

Although other factors will be taken into consideration, your credit rating will be a deciding factor in whether or not you can get a business loan. Your history in making payments on time will be of great impact. Before you apply for a business loan, it's good for you to know your credit history, especially if you're not sure what your credit score is or if you think it is damaged.

In order to get a report, call one of the three credit reporting agencies, Equifax, Experian, or TransUnion (keep in mind that credit reports are only free once a year, so if you have gotten a report in the past 12 months, you may have to pay a nominal fee.) Once you get your report, it will let you know what you need to do to improve your credit score if necessary. If your score is low, you will need to bring it up before attempting to apply for a loan.

If your score is low, the following are some tips for bringing your credit score up so you can have a better chance of getting a business loan with a low interest rate.

• Pay down your credit cards. Experts recommend you keep your credit cards at no more than 30% of the maximum balance. A number of maxed out credit cards will make your score go down and lower your debt to income ratio.
• Pay your bills on time. One of the fastest ways you can raise your credit score and keep it in good standing is to simply pay your bills on time. If you have trouble doing this, or if you don't think you can make your payments, contact your creditors immediately. They do not want to send you to collections; they simply want to collect their money. Most places will work out a workable payment plan with you. You may also want to consider setting your bills up to be taken automatically from your account, so they are never late.

Your credit will play a large role in not only whether or not you will obtain a business loan, but it will affect other factors as well. Make sure your credit score and history is up to par before applying for a business loan.