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The Importance of Credit Scores As Individuals and Business Owners

Part of our All Star Business Series

Everyone knows you need a good credit score to buy a house or car, get a credit card, or apply for a personal loan.

But did you know your personal credit score can determine whether you get to start your own business?

“When you first start out as a small business owner they want you to personally guarantee everything,” Blair Warner, Founder of the Dallas based business Upgrade My Credit, said. “They want to use your personal credit score and your personal credit history…So if the applicant doesn’t have good credit they might not be able to get capital for their business or be approved for merchant services. Or if they do get approved, they’re going to get it at higher rates.”

Warner started the company in 2006 after working in the mortgage industry. So while most of his clients were initially trying to improve their credit for the personal reason of buying a house, he is seeing more people come to him to improve their credit with business goals in mind.

He said all of this just reiterates how the importance of credit scores influences almost every aspect of someone’s life.

“In the last 20 years, FICO (Fair Isaac Corporation) has arisen and become almost as important as your drivers license number or social security number,” Warner said. “Since FICO has come out and become the leader other competitors have come up…but right now FICO is still the number one score used by lenders.”

If you’re wondering what your credit score is but are scared to check for fear of negatively affecting your score, know that there is a difference between a hard and soft inquiry. According to myFico.com, soft inquiries are all credit inquiries where your credit is NOT being reviewed by a prospective lender. Hard inquiries are those where a potential lender is reviewing your score because you’ve applied for credit with them.

According to MyFico.com, the information about inquiries that can be factored into your FICO score includes:

-Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account.
-Number of recent credit inquiries.
-Time since recent account opening(s), by type of account.
-Time since credit inquiry(ies).
-A FICO score does not take into account any involuntary inquiries made by businesses with whom you did not apply for credit, inquiries from employers, or your own requests to see your credit report.

Checking your FICO score routinely is the key to financial security particularly if you hope to own a business or if you already have a sucessful business.

The rising importance of your credit score and the increased number of identity theft and credit card breaches should encourage individuals to not only check their credit score, but make sure to take all possible security measures regarding their credit cards. You would hate to have your FICO score ruined and find out that the house you hope to buy, the line of credit for your business, or the personal loan you might one day need is denied due to poor credit.

 

About the Author

Jackie Clews is a Co-Founder of Digital Marketing Direction, LLC and has spent nearly three years leading digital marketing strategies for various nonprofits and businesses. She believes effective data and content strategies with the right technology in place are the perfect recipe for maximizing online conversions and ROI.

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