Finance expert Mike Periu on how to get the best possible personal credit score before applying for funding for your business.
For small-business owners seeking funds from investors or lenders, it’s almost a certainty that your personal credit will be reviewed as part of the process. Since many small-business owners are intimately tied to their businesses, it’s difficult to imagine someone investing in a business where the owner has terrible personal credit. Lenders expect owners to have a personal FICO score of 700 or above, that is significantly higher than the 600 they expected just a few years ago. Before reaching out to investors or lenders, make sure your personal credit is in good shape.
If it isn’t take these three steps:
- Check your credit report for errors. Approximately 80 percent of credit reports contain errors. It’s up to you to find them and have them fixed. Go to AnnualCreditReport.com where you are entitled to download your credit reports one time per year from the three major credit reporting agencies. If you find errors use the procedures described in each report to have them corrected.
- Improve your credit score. When your FICO score is calculated, a number of variables are taken into account. A key variable is the percentage of your available credit that is being used. The lower this ratio, the better your FICO score. Pay down as much debt as you can and do not cancel unused credit cards.
- Communicate with unpaid vendors. A late payment reaches your credit report only because someone to whom you owe money reports it. When negotiating with vendors ask them to hold off from reporting it to the credit bureaus so it doesn’t hurt your FICO.
