Your business and personal credit score (as a director of the business) are a major part of what lenders look at in their decision-making when it comes to business loans. So, knowing how to manage your credit score can go a long way and could mean the difference between getting refused or approved now and for subsequent requirements.
When you apply for a business loan to determine if you’re eligible, most businesses will check your credit score. Because you are smart, you want to compare a few options, to determine who will deliver an acceptable interest rate, resulting in multiple hits to your credit score.
As you can imagine, the consequences are that:
- You are spending a fair amount of time sharing all of your financial and non-financial information upfront without much confidence that the lender will even approve your loan. You probably would prefer not to have to share this information unless you really need to.
- You are consenting to the lender conducting an inquiry on your credit file, usually both the company and director’s personal score.
When looking at some of the latest statistics published by Veda (Oct 2016), in a credit score scale of 0 to 1,200, it shows how important it is to be aware of how to take care of your score:
As Veda put it, “Worryingly, 17 per cent have a score between 0 and 509, a range labelled "below average", and 16 per cent have a score between 510 and 621, considered "average"
What are the three things you should know to help you manage your credit score?
- The more you apply, the more your credit score gets hit
Shopping around for credit and applying to multiple lenders within a short period of time is likely to negatively impact your credit score. Lenders will view you as a greater credit risk than compared to less frequent applications.
- Who and what you apply for matters
The type of product, amount and lender associated with a credit inquiry is likely to impact your credit score. Credit cards and payday lenders are seen to be more risky than other options, by avoiding these types of high interest options you will maximise the chances of maintaining a good credit score.
- Too many business loan declines may lead to inability to access financing
The more credit applications you get refused for and the more credit applications you submit, the more credit inquiries there will be on your file which will worsen your score and likelihood of accessing credit in the future.
Yes, you read it right, by shopping around for a better deal, you are actually accomplishing the opposite effect, in that the more lenders you shop around with, the less chance that you will get a loan, whilst damaging your credit score along the way.
There is however, one commercial lender in Australia that can tell you upfront:
1) your eligibility (likelihood of approval/pre-qualification) also referred to as a ‘rate estimate’
2) Provide a personalised rate that rewards you with a better rate if your credit score is healthy without having to perform a credit inquiry and complete a full application.
In less than three minutes, Bigstone’s rate estimate can perform a pre-qualification on the spot 24 hours a day/365 days of the year. This estimate is not a static website calculator that you may have come across with other online lenders, Bigstone’s rate estimate uses the information you provide and runs it through a pricing and credit engine behind the scenes and responds with a pre-qualification and personalised rate within a small range so you can decide whether to proceed with a full application or not.
Whilst it does not guarantee that you will get approved for the loan, it does provide you with some precious information to help you decide where to apply for credit.
To give the estimate a go, just hit the orange button on the Bigstone business loan page.
Is superannuation still a good option for your clients?
By Chris Morcom
Practical advice for improving your cyber security
By Rob McAdam, Pure Hacking
Blockchain: why it’s time for accountants to get on board
By Ben Scull, Thomson Reuters