What Determines Personal and Business Credit Scores?
As you prepare to take out a loan, start a business, a credit check may be required. If you’re unfamiliar with your credit score, or unhappy with what you see in your credit check, it may feel frustrating.
If you’re looking for ways to build your score, look at these factors that go into determining your score.
Personal Credit Score
First, your personal credit is based on your personal financial responsibility. It’s based on a single number. Basically, your score is a representation of your ability to pay off debt and handle credit responsibly. If you have access to a large amount of credit, but choose not to use all of it, it builds your score. Paying off your debts is another great way to build it.
However, if you don’t have access to any credit, you may not have a strong score. It’s difficult for businesses to determine how you’ll spend a loan, since you’ve never had access to someone else’s money. Your personal credit drops significantly if you miss payments, max out your available credit or experience a foreclosure.
Nearly every personal credit decision is based on your score, and it’s a relatively universal score. However, business credit can vary dramatically. Every business credit bureau has a different rating system, and each one is far more complex than the personal credit system. While you can’t find out the secret to quickly building your business score using an exact formula, the same general rules apply.
Business Credit Score
Building a business credit score typically requires you to have access to credit, spend it wisely and pay it off consistently. It also helps if your business is growing and taking on new clients. Some businesses should consider investing in assets, such as property or equipment.
These are just a few key areas that affect your personal and business score. It can be difficult to build either rapidly, but taking out more credit and paying it off responsibly is a great way to start. Look for opportunities to slowly build your score if you’re seeking a mortgage, equipment loan or other type of financing.
If you haven’t recently checked your credit score, ensure that there’s no false information about your payment history. Look for factors that may be pulling down you score, and work to build it up before you apply for your next business loan or credit card. A higher score can help you receive the loan you need at the rates you want.
