Potential lenders use your credit score to gauge your eligibility in qualifying for Minnesota business loans. Your credit score indicates whether you’re financially stable and capable of managing credit or not. Credit scores can range from 300 to 850, with 300 being the lowest. To qualify for small business loans, potential lenders would want to see a score of at least 550.
Credit agencies gather information based on your credit file, and these scores are commonly known as FICO scores. Expect that various agencies will report a slightly different score, but it should still give lenders a clear picture of your credit history. Here are five different factors that affect your credit score:
1. Credit Inquiries
Bureaus notice every time someone asks for information about your credit. There are two forms of credit inquiries – soft credit inquiries and hard credit inquiries.
Soft Credit Inquiries
Soft credit inquiries happen when people (other than potential lenders) ask for your credit information, such as your future employers. These inquiries generally do not affect your overall credit score. However, lenders can also run a soft credit inquiry to see if a potential borrower can qualify for a specific financial product.
Hard Credit Inquiries
Hard credit inquiries take place when banks, lenders, or other types of financial institutions review your credit score. This commonly happens when you’ve applied for business loans or other forms of credit. Unlike soft credit inquiries, hard credit can cause a dent on your total credit score. The more your potential credit is requested, the more credit agencies would assume that you need money and eventually cause you to default on your debt.
2. Payment History
Potential lenders want to know if you pay your bills on time and if you’ve missed any payments. Regardless of the reason and the type of debt you took, missed payments won’t work well with credit agencies – and not to mention, potential lenders.
3. Length of Credit
The length of credit pertains to how long you’ve had the credit. The longer your credit accounts or loans, the better it is for your credit score, as long as you’ve paid regularly and on time. Your length of credit shows that you’re capable of properly managing your debt.
4. Amounts Owed
This pertains to the total amount you owe and to whom you owe the money. They also consider how you use your credit. Credit bureaus favor borrowers who have access to credit but don’t drain it out. Your credit utilization can be determined by dividing the amount of credit you’re already using, by the total credit available for your disposal. Experts suggest that you keep your credit utilization lower than 30%, which means you can only use that much. By doing so, you show potential lenders that you are wary of how you use your credit.
5. Mix of Accounts
Your credit score will turn out better if you’ve successfully managed and balanced numerous types of loans, such as a car loan, mortgage, credit cards, etc.
Minnesota Business Loans: Small Business Loans for You
You can be sure that your personal credit can affect your eligibility to borrow money in the future. If you want to know more about Minnesota business loans, the lending experts at SMB Compass can help.