Credit can seem confusing, but it doesn’t have to be! By understanding what credit is and how scores are calculated, you can learn practical steps to establish or improve it.
Credit Reviews
Simply put, credit is trustworthiness. When businesses need a reliable assessment of your financial trustworthiness, they can check your credit score or request a credit report. For us, a standardized credit check is helpful to ensure equal credit opportunities for our applicants while minimizing the financial risk to our membership. Insurance providers, vendors, or landlords may also choose to review your credit for similar reasons.
In addition to other factors, our loan application process includes a review of the member’s credit score and a current credit report from a national credit reporting agency, such as Experian®, Equifax®, or TransUnion®. Organizations and/or owners must be eligible for Visions membership to take out a loan with us.
In general, if you have a higher credit score and favorable credit history, you’re more likely to be approved for a loan with lower rates and favorable terms. As a result, your credit can help to unlock financial opportunities and is a key component of your financial well-being.
Business Credit Scores by Experian®
Al igual que con las solicitudes de crédito personal, la mayoría de las instituciones financieras revisará el crédito empresarial de una organización durante el proceso de solicitud de un préstamo comercial. An organization has its own credit report based on an EIN (Employer Identification Number), which is reported and scored independently from personal credit scores. Even if you have excellent personal credit and previous successful enterprises, you’d need to build up the credit history of each new business from scratch.
Just like consumer credit reporting, there are multiple agencies that have scoring models for businesses. Take Experian®, for example.
The Experian Business Credit Score can range from 1 to 100, with the highest score representing the lowest risk according to their analysis. To determine a business’ credit score, Experian collects and analyzes data across industries, public records, lenders, courts, collections agencies, independent sources, databases, and more. In addition to public records and industry-specific demographics, each score considers the organization’s credit balances, payment habits, utilization, and financial trends over time with suppliers and lenders.
Experian also provides a Financial Stability Risk Rating in business credit reports. This rating ranges from a low-risk rating of 1 for a business with less than a 1% risk of going into bankruptcy or financial distress in the next year to a high-risk rating of 5 if they have more than a 35% chance of distress within the year. Experian explains this score is “based on multiple risk factors including: tradeline and collections information, public filings as well as other variables to predict future risk.”
Tips to improve your business credit
Similar steps can be taken to benefit your credit reports and improve your scores for both personal and business credit. For starters, keep your personal finances separate from your organization. To increase your financial reporting and credit history, you may be able to provide payment histories from your vendors or utility providers that demonstrate your positive financial relationships. For a business, that could include listing trade references on your credit bureau accounts or asking vendors to report your payment history to a credit reporting agency.
If you or your organization have no credit history or a low credit score, you may not qualify for unsecured loans at many financial institutions. If that’s the case, consider a share secured credit card, such as our Visa® Business Cash Rewards card. By utilizing and consistently paying down your secured card, you could build a favorable credit history over time and eventually may qualify for other competitive loan products. Plus, you can enjoy the same benefits whether the card is secured or unsecured.
In addition to those tips, here are some reliable guidelines for building credit:
• If you don’t have it, don’t spend it
• Keep your lines of credit below 30% of the limit
• Pay your bills on time or early
• Use online accounts to monitor payments and ensure they’re on time
• If you can pay your card down while staying on top of your bills, then pay your credit card balance in full
• Avoid opening or closing too many lines of credit in a short period of time
• Avoid borrowing from finance companies
In addition to practicing good credit habits on your own, it helps to develop a comfortable and trusting relationship with a financial institution. Having a supportive partner like Visions in your corner can lead to better credit decisions and financial wellness overall.
Local Support for Your Financial Journey
Whether it’s managing debt, financing real estate, or building your credit score, Visions is here to support your financial well-being.
Take advantage of FREE confidential one-on-one financial counseling in person or virtually. We can help you review credit, personal finances, business goals, and more. Browse our financial wellness resources or reach out to our team of experts at education@visionsfcu.org.
