Any time you apply for a charge account, bank loan, insurance or a job, you may be subject to a credit check. Your credit score balances the types of debts you have versus your likelihood of repaying them and gives you a score. The higher your score is, the better your credit. Your credit report also includes information about where you live and where you work, how dependable you are at paying your bills, and whether or not you’ve ever been arrested, filed for bankruptcy or been sued. Because this information is so personal, you want to be careful who you give access to your credit report. If you are looking for a small business loan, it is important to make sure that your credit is in good shape before you start.
Consumer Reporting Agencies
The companies that work to investigate and gather this type of information are known as consumer reporting agencies. The most common of these is the credit bureau. They will sell information about your credit history in the form of a consumer report to anyone you authorize to pull your credit history. Any time you apply for some type of credit, a small business loan or unsecured business loans, you will have to give authorization for the company to pull your credit report.
Fair Credit Reporting Act
The government has put regulations in place to ensure that this process is not abused. There are rules in place to ensure that your business is not illegally obtaining credit reports and information. The following are times when your business may request credit reports for customers:
- – To extend customer credit
- – Pre-employment checks for potential employees
- – Give customer information to credit reporting agencies
Again, because this information is extremely sensitive and important to each individual person, you must have a valid reason for requesting a credit report, along with authorization from the consumer.
Credit For Small Business Loans
When you are applying for small business loans or working capital, it is important that your credit score is as high as possible. Your credit score is directly correlated with your likelihood to pay your bills and obligations on time. Before you apply for your loan, request a copy of your credit report a good place to get it from is truecredit – it’s free for the first 7 days! Examine your report to make sure there aren’t any unauthorized debts showing on your credit. Unfortunately, social security numbers are often stolen and debts are racked up before consumers are even notified. Credit monitoring will help you catch these issues quicker but it’s also better than keeping fraud alerts on your file if you’re in the process of looking for financnig. Any of these problems need to be addressed with the fraud department of the specific company in order to be rectified.
If you have any open credit cards or lines that are open and paid off, DO NOT close them out before applying for small business loans. Those open credit cards and credit lines help your credit scores and enhance your credit profile. Pay off small credit cards in order to improve your debt to income ratio and your FICO scores. Cleaning up your credit report can increase your credit score greatly.
Good Credit, Better Loan
The better your credit is, the better you loan terms will be. You may be offered a lower rate if you have a higher credit score, and you may have more lenience as far as repayment terms. Before you apply for small business loans, take the time to obtain and clean up your individual credit report and those of all key management in your company.