Navigating business credit can be a difficult journey, especially if you are building credit to seek funding for your business. Many business owners often overlook the importance of their personal credit while they are building business credit scores, but the ugly truth is that many traditional creditors will still look at and base decisions on a business owner’s personal credit scores in addition to the business’ credit scores.

Building Business Credit For Funding? Your Personal Credit Still Matters!

As you continue to grow your business it is important to monitor your personal credit health, ensuring you are truly prepared to seek funding when you are ready. Let’s explore the personal credit scores that matter, how the scores are calculated and some tips that will help you bring your score up.

The Scores That Matter

Equifax, Experian, and TransUnion are the three major credit bureaus in the United States, each playing a crucial role in the credit reporting system. They collect and maintain consumer credit information from various financial institutions and lenders. Here’s a closer look at each bureau and their scoring models:

Equifax

Equifax is one of the oldest credit bureaus, founded in 1899, and it provides its own credit scoring model known as the Equifax Credit Score, in addition to using standard scoring models like FICO. The scores typically range from 300 to 850.

• Poor (300-579): Credit scores in this range often indicate a significant risk to lenders.
• Fair (580-669): While not ideal, fair scores may still qualify for credit, albeit often at higher interest rates.
• Good (670-739): Most lenders view this range as a low risk, usually qualifying for better interest rates.
• Excellent (740-850): These scores are considered ideal, typically leading to the best loan terms and credit offers.

Experian

Experian is another prominent credit reporting agency, established in 1996. It uses the FICO credit scoring model to offer its services. FICO scores also range from 300 to 850.

• Poor (300-579): Similar to other models, scores in this range are seen as a high risk for lenders.
• Fair (580-669): Scores here can secure credit but often come with higher interest rates.
• Good (670-739): Generally seen as a favorable range, often leading to reasonable credit terms.
• Excellent (740-850): These scores denote very low risk, providing the most attractive lending rates and terms.

TransUnion

TransUnion was founded in 1968 and offers various scores, including the TransRisk and VantageScore models. VantageScore, developed collaboratively by the three major bureaus, also uses a 300-850 range.

• Poor (300-499 for VantageScore 4.0): At this level, obtaining credit is very difficult and expensive.
• Fair (500-649): Individuals in this range might still acquire credit but with higher scrutiny and interest rates.
• Good (650-749): This bracket is considered low risk, which often results in favorable lending conditions.
• Excellent (750-850): Scores here are seen as very low risk, granting access to the best financial products and deals.

Each bureau uses slightly different criteria for their assessments. FICO is the dominant system across the board, but new models like VantageScore are gaining traction. Despite slight variations in scoring criteria, they all aim to encapsulate a consumer’s creditworthiness comprehensively, guiding lenders in risk management and credit issuance. Understanding these scores can significantly impact personal financial planning and access to credit.

How The Scores Are Calculated

Two of the most widely used scoring models are FICO and VantageScore. While both models aim to measure credit risk, they have differences in their calculation methods and factor weightings. Let’s compare the factors that impact the FICO score and VantageScore.

FICO Score Factors

1. Payment History (35%):
   • This is the most significant factor and examines whether you’ve paid past credit accounts on time. Late payments, defaults, foreclosures, and bankruptcies can severely impact this component.
2. Amounts Owed (30%):
   • Also known as credit utilization, this factor measures the amount of credit you’re using relative to your total available credit. Lower utilization ratios are generally better.
3. Length of Credit History (15%):
   • This considers how long your credit accounts have been active. A longer credit history provides more data on your financial habits, typically benefiting your score.
4. Credit Mix (10%):
   • This reflects the variety of credit accounts you have, such as credit cards, mortgages, and installment loans. A diverse credit mix can positively impact your score.
5. New Credit (10%):
   • This factor examines recent credit inquiries and the number of recently opened accounts. Numerous inquiries or new accounts in a short period can suggest higher risk.

VantageScore Factors

1. Payment History (40%):
   • Like FICO, VantageScore places significant weight on your history of paying bills on time, noting any delinquencies or missed payments.
2. Depth of Credit (21%):
   • This takes into account the length and management of your credit history, similar to FICO’s Length of Credit History and Credit Mix combined.
3. Credit Utilization (20%):
   • Measures the percentage of available credit being used. Keeping a low utilization rate is crucial for a better score.
4. Balances (11%):
   • This assesses the total amount of debt owed, considering whether balances are increasing or decreasing.
5. Recent Credit (5%):
   • Examines new credit behavior and inquiries, focusing on whether you’ve opened many new accounts recently.
6. Available Credit (3%):
   • Looks at the total available credit across all accounts, where having more available credit is seen positively.

As you can see with both scoring models, payment history has the most impact, closely followed by your credit utilization. Understanding how these factors can impact your score is your first step to building your credit foundation.

Treat Your Credit Score Like It’s Alive

Your credit scores needs to be nurtured to grow and remain stable. You need to give it consistent attention to keep it healthy. There are some simple steps you can take to build, repair and maintain your scores:

1. Visibility of personal credit is key. If you are not already signed up with Credit Karma and Experian for their free credit monitoring accounts it is highly recommended that you do so now (see below for free resources). Credit Karma provides you with free reports and access to TransUnion and Equifax and Experian provides you with their own report, giving you access to all three major credit reports. Please keep in mind that most people will see a variation in scores between Credit Karma and Experian. Credit Karma is using the scoring model called Vantage, this is a newer model. Both Credit Karma and Experian offer free accounts and that should be all you need to get started in reviewing your credit.
2. Credit utilization has a major impact on your credit score. The total amount of credit that you are utilizing (or the total amount that you owe across your credit cards) should not be more than 30% of your total amount of available credit. Below 30% will put your credit utilization in a “Good” range, below 10% places your credit in the “Excellent” range. This factor is one that is considered heavily when a creditor is evaluating your file. Making an extra payment once a month can have a big impact on helping to pay down your balances, of course only do so if you can without overextending your finances.
3. Hard inquiries tell a lender how aggressively you have been seeking new credit. Hard inquiries stay on your credit profile for two years and can drop your score on average by 30-60 points. After a year they have less of an impact but if you have too many new inquiries suddenly and your credit use is already high it can raise red flags for creditors. Opening business accounts that don’t check personal credit, like Growegy’s Net 30 account, is a great way to keep your personal scores from being dinged, allowing you to keep hard inquiries.
4. Dispute Inaccuracies, don’t let inaccurate information bring your scores down. Disputes for personal credit can be submitted several ways, both through their online dispute system and by sending a physical letter. Physical letters are treated differently by the bureaus and often have a bigger impact than the online dispute system. You can also reach out to the creditor directly and try to resolve the issue directly with them. There is a link to a sample letter you can sent from the FTC below in the free resource section along with the addresses for each bureau.
5. Ensure that you dispute:
   • Any collections or past due reports over 7 years old
   • Any inquiry over 2 years old
   • Any inaccurate information and any bankruptcy over 10 years old.

If you file a dispute with one credit bureau you need to file with any other bureau it shows up on to insure it is removed from all reports. An online dispute can be filed in as little as two minutes.

Experian Bonus Boost

The Experian app offers a feature called Boost. Boost allows you to login from your bank account from Experian, and then they will search your statements for any utility payments that qualify to be reported on your credit. This feature only reports positive credit and will not report negatively if you pay late. This can boost your score up to 30 points if they find qualifying accounts.

To get started, see the links and instructions below:

Experian: https://www.experian.com/

Once you register for an Experian account you can take these steps to utilize Experian Boost:

1. From the main dashboard click on the menu button circled below:
2. Click “Experian Boost”. From here you will click “Add your bills to Boost”
3. Experian will then ask you to select your bank and login using your online banking username and password.
4. Experian will do the rest and if they find any qualifying payments your score will be automatically boosted.

Free Resources

Checking your credit for accurate information should be something that you do regularly.

Credit Karma: https://www.creditkarma.com/signup

Experian: https://www.experian.com/

Free Credit Reports: https://www.annualcreditreport.com/index.action
This site is authorized by the Federal Government and is the only source for free reports from the major three credit reporting agencies.

Addresses to send dispute letters to:

• Experian | P.O. Box 4500 | Allen, TX 75013
• Equifax Information Services LLC | P.O. Box 740256 | Atlanta, GA 30374-0256
• TransUnion Consumer Solutions | P.O. Box 2000 | Chester, PA 19016-2000

Send your letter by certified mail to ensure delivery. Include your full name, date of birth and all addresses where you have lived in the past two years. Attach copies of supporting documents but not the originals. Clearly state each item you are disputing and the reasons you believe the information is inaccurate. You can find a sample dispute letter from the FTC here.

Need Additional Guidance?

Growegy is here to help you succeed and grow your business with a strong foundation. You can always reach out to your account manager to help guide you through your credit building journey.*

*Please note, if you are working with a credit coach we will defer to their instructions. There are many strategies used for building, maintaining and repairing credit and one strategy may sabotage another. Growegy is not a credit repair or credit building agency. This blog post is meant to be an informative guide to help those seeking education and free resources. Results are not guaranteed and may vary.