LenCred helps entrepreneurs and small business owners with a good credit score and history obtain capital in the simplest way possible. When you have excellent credit, more options are available to you to finance your business. Entrepreneurs with a bad credit score will find it difficult (but not impossible) to obtain financing.
We’re experts in helping entrepreneurs and small business owners with a good credit score obtain the financing that is right for them and at the right price. The better your credit score, the better interest rate and terms you will get from lenders. Many of our clients want the best interest rates and terms when borrowing. They need an expert to help them find the lenders who will give it to them. LenCred is that expert.
What Type of Financing Do You Offer for Entrepreneurs with a Good Credit Score?
Our specialization is unsecured business line of credit financing. We teach entrepreneurs and small business owners what it takes to get approved for this type of small business financing. We also work with them to help them obtain as much as $250,000 or more in unsecured business lines of credit. If you have a good score and established credit history, we can help you get an unsecured business line of credit fairly quickly. Contact us today to learn more.
What if You Have a Bad Credit Score?
Entrepreneurs with a bad credit score likely won’t qualify for the type of financing that an entrepreneur with excellent credit can. And when they do find financing that they qualify for, the interest rates and terms may not be favorable. While we can’t usually help entrepreneurs and small business owners with a bad credit score obtain an unsecured business line of credit, we can educate them on how to improve. If this is you, keep reading. Use the information to improve your credit score and apply for unsecured business lines of credit in the future.
Improve Your Credit Score So You Can Get Small Business Financing in the Near Future
The first step to improving your credit score is understanding the score model created by the Fair Isaac Corporation. The Fair Isaac Corporation (aka FICO) created a score model that calculates your credit score. The majority of the banks and lenders that offer small business financing use your FICO credit score to determine your credit risk. Your FICO credit score is determined by the data compiled on your credit report. The information on your credit report is grouped into several categories that are analyzed to determine your credit score. They include:
Payment History – 35% of your credit score is based on your payment history. Making timely payments towards your debts and expenses will ensure that you keep a positive payment history. If you have a lot of recent late payments, it will be difficult to obtain small business financing. (Late payments made in the last 2 to 3 years are considered recent).
Amounts Owed – 30% of your credit score is based on outstanding debt. This includes loans and lines of credit. Having outstanding debt doesn’t mean you’re a higher credit risk. However, the more outstanding debt you have, the higher your debt-to-income ratio and/or credit utilization. This could prevent you from getting approved for small business financing.
Length of Credit History – 15% of your credit score is based on the age of your credit history. The older your credit history, the better. When you have an older, more established credit history, you have greater chance of getting small business financing. Lenders view you as having more experience managing credit accounts than someone with a short credit history.
Credit Mix – 10% of your credit score is based on the types of credit accounts you have including installment loans, lines of credit, retail credit cards, etc. The more different types of credit accounts, the better your credit score. (This is especially true if you keep low balances and make timely payments). Having a good credit mix lets lenders know you can manage different types of debt.
New Credit – 10% of your credit score is based on any new credit you have obtained. Obtaining new credit can temporarily decrease your credit score. For example, a recent credit inquiry done by a mortgage financer could cause your credit score to drop. If you plan on applying for small business financing, you should avoid applying for other types of credit during the six months before.
Your FICO Score is Important, But So Is Your VantageScore
Your credit report is compiled by the three major credit bureaus. This includes Experian, Equifax, and Transunion. Banks and lenders pull your credit reports from these companies when you apply for small business financing to determine your credit risk. Most people don’t know that the three major credit bureaus also have their own score model. Transunion, Experian and Equifax formed a partnership to create the VantageScore. The VantageScore is a consumer credit score model that can be used by banks and lenders to determine your creditworthiness.
The VantageScore is parallel to the FICO score, however, the FICO score is still the more widely used by banks and lenders. About 90% of banks and lenders will pull your FICO score when you apply for small business financing. The other 10% may pull your VantageScore. That doesn’t mean you should overlook the VantageScore. The VantageScore is continuously growing in importance.
How Does a FICO Score Differ from a VantageScore?
There are several difference between the FICO score and VantageScore. The FICO score range and VantageScore range differ. The FICO score range is 300 to 850. The VantageScore range is 501 to 990 (for older models of the scoring system). In 2013 the new VantageScore range changed to 300 to 850 to appease banks, lenders and consumers. Banks, lenders and consumers wanted the VantageScore range to be the same FICO credit score range to make it easier to read credit reports. The categories that are analyzed to determine your credit score also slightly differ for each score model. The VantageScore model focuses on the following categories to compile your credit score:
Payment History – 40% of your VantageScore is based on how timely you make payments.
Age & Type of Credit – 21% of your VantageScore is based on the age of your credit profile and the types of credit accounts you have.
Percent of Credit Limit Used – 20% of your VantageScore is based on your credit card utilization. (Having credit cards that are maxed out will decrease your score dramatically and interfere with your ability to obtain small business financing such as unsecured business lines of credit).
Total Balances/Debt – 11% of your VantageScore is based on the amount of outstanding debt you have.
Recent Credit – 5% of your credit score is based on how recent you have applied for and/or opened credit accounts.
Available Credit – 3% of your credit score is based on how much available credit you have on your credit card(s) in comparison to the total credit limit(s).
Other Credit Score Models That Are Good to Know About
There are other lesser known consumer credit score models such as the PLUS score, TransRisk, ScoreSense, CreditXpert, and the Experian National Equivalency Score. Equifax also has its own scoring model. The decision-making process is similar for all of the other score models. These score models also use your payment history, age of history, total debt, total utilization, types of credit, and new credit obtain to determine your overall credit risk. Most of these other scoring models are not necessarily used by banks and lenders. However, they are designed to help consumers better understand how lenders use our credit profiles to determine our credit risk level.
Get Your Real FICO Score and VantageScore, Avoid Free Credit Score Sites
Knowing your real FICO score and VantageScore is critical to improving them both. Many people are obtaining their credit reports from free credit score sites. However, most people don’t know that all free credit score sites are not created equal. They may offer a free copy of your credit report but they are not always accurate or thorough. Furthermore, not all free credit score sites give you a real FICO score or VantageScore. Your real FICO Scores can be obtained via www.MyFICO.com. Your real VantageScores can be obtained via sites like www.Credit.com and www.CreditKarma.com.
MyFICO.com and Credit.com charge reasonable fees to obtain your credit reports. However, the information they provide is accurate and thorough. CreditKarma.com is a free credit score site but it doesn’t provide as many details about your credit history as it should. (I know because I’ve used it). I strongly suggest contacting the free credit score site by phone or email to find out which score model they use if you don’t see it listed on their website.
Know Your Rights, Study the Fair Credit Reporting Act
In addition to understanding how credit scores are compiled, it’s important to know what rights you have regarding what’s reported. Knowing your rights in this area is critical because it’s what reports on your credit that effects your overall credit score. The Fair Credit Reporting Act was created to protect consumers from a number of things that can have an adverse effect on our ability to obtain new credit. Click here to learn more about how the Fair Credit Reporting Act can help you in the process of repairing your credit. Its 108 pages long. But if you’re serious about building and maintaining an excellent credit history, you can breeze through it in a few hours.
Consulting with a Credit Repair Expert May Not Help
I usually don’t recommend consulting with a credit repair expert to people. This is because credit repair is a hit or miss. There is no guarantee that a credit repair expert will be able to help you get any negative accounts removed from your credit history. I prefer to tell people to educate themselves on the Fair Credit Reporting Act and use it to their benefit.
If you have negative accounts on your credit report and they are accurate, a credit repair expert won’t be able to help. Legally, you can only get negative accounts removed when they are outdated and/or inaccurate. Don’t let anyone tell you otherwise. There are so many unethical credit repair experts in the industry who will try to sell you a dream. If they do something illegal or unethical to remove an account from your credit report, chances are it will come back. And on top of that, it could get you into trouble.
Remember This Before You Hire a Credit Repair Expert
Be very mindful of you hire to help you repair your credit. Conduct a thorough background check and investigation on the company before you proceed. Also keep your expectations low, because like I said before, credit repair is a hit or miss. Lastly, but definitely not least, do not spend thousands of dollars on credit repair. A credit repair expert who charges $2,500 versus one who charges $500 means nothing. A higher price doesn’t mean they will do a better job. It just means you will pay one more than the other to do the exact same type of work.
Just about all credit repair experts use dispute letters that were create based on the Fair Credit Reporting Act to get negative accounts removed from your credit reports. Others may tell you to file police reports disputing that you opened the accounts (which is considered fraud). Either way, a credit repair service, in my professional opinion should cost more than $500.00.
Building (or Rebuilding) Your Credit Takes Time
When it comes to credit scores, there’s no way to legally beat the system. A good credit score is something that is built over time. You have to remember what makes up a credit score and do what it takes to ensure you keep a high one. Don’t beat yourself up over the fact that you can’t get small business financing right now because of a less than perfect history. Credit scores fluctuate for everyone all of the time. Chances are your credit score will go up again if you apply what I have discussed here.