Having excellent credit can open up many doors for you, especially when applying for small business loans. If you have excellent credit, that likely means that you do a good job of managing your debts and making timely payments. It also means that you have a long, well established credit history. If you don’t have an established credit history, but you have a high credit score, that won’t be enough to help you obtain small business loans. For example, there are times when small business owners contact me for help with obtaining small business loans. They will say, “I have a high credit score, I should be able to qualify for a small business loan.” The first thing I tell them that it isn’t about their credit score, rather their credit history.
A High Credit Score Doesn’t Equal Excellent Credit
The fact of the matter is that you can have a high credit score and not be considered by lenders to have excellent credit. For example, if you have one personal credit card that you have been paying on for only six months and it’s reporting to on your credit profile, that won’t be enough for lenders. While it’s good to have, you haven’t had it long enough. Depending on the lender, they will want to see that you have established credit for at least one full year before they consider approving you for small business loans. If you want to apply for unsecured business lines of credit, lenders will expect you to have a credit history that is at least five years old. In addition, they will look to see if you have a diversified credit history.
A Diversified Credit History Helps You Build Excellent Credit
A diversified credit history means you have a number of different credit accounts (that you are paying on time and have had for a long period of time) reporting on your credit profile. An excellent credit profile consists of installment loans (i.e. car loans, mortgages, etc) and personal credit cards that you’ve had for at least five years. A diversified credit profile gives lenders a clear understanding of how well you manage debt and helps them determine if you qualify for small business loans. If you don’t have a diversified credit history, but you have a high credit score, you may not qualify for small business loans just yet.
Excellent Credit is Built Over Time
The bottom line is that excellent credit is built over time. There are no shortcuts, especially when you need to build credit to qualify for small business loans. There are people out there who will tell you they can “add seasoned tradelines” to your personal credit profile to quickly increase the longevity of your credit history. Things like this usually don’t work. You’ll end up wasting your time and money. It’s best that you apply for loans and/or lines of credit in your own name and make timely payments towards these accounts for at least one year.
Not Sure Where to Start? LeCred Can Help
If you’re not sure how to start building excellent credit, LenCred may be able to help. LenCred can help you apply for unsecured personal credit cards (with the right lenders) to help you begin building your credit profile. If you want to qualify for small business loans, building your credit history with unsecured personal credit cards is a good start. As long as you are able to manage the credit cards and make timely payments, you could qualify for small business loans within one year after getting them.