Credit Score Checks: 5 Key Steps to Prepare For Credit

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Credit Score Checks: 5 Key Steps to Prepare For Credit

9 min read. November 22, 2022 by Lauren Coppolone

What are the steps that you will need to take if you are looking to apply for business credit? Continue reading to learn more.

A credit score is more than just a number—it’s a measurement of your creditworthiness over your lifetime. It’s essentially a snapshot of your credit history, but most people don’t realize how important their history of borrowing and repaying is for other aspects of their life.

Whether you’re leasing a vehicle, applying for a job, or securing a business loan, there’s a strong possibility that the person on the other end of the deal will perform a credit check to learn more about your history.

They can tell a lot about you from just that one number, like your ability to make timely payments, how often you use credit cards, and much more, but it’s not as informational as they assume.

As you know, one mistake can cost you some serious points off your credit score. For example, one missed payment can cost you 180 points off your score, which will stay on your report for up to 7 years. If you were to have your credit checked within these 7 years, the evaluation would reveal this missed payment and, unfortunately, it may impact your ability to secure the assets or services you need. 

One small mistake 5 years ago could potentially cost you a business loan in the future, so it’s always important to stay on top of your credit repayments to ensure future-you can grow without restraint.

A credit check can be scary if your score is less than favorable, but with some proactive steps, it becomes a whole lot easier. Here’s all the information you need to know about your credit score checks and some of the best steps to take if you’re looking to get in the best shape for approval:

1. Understand the Importance of a Good Credit Score

A credit score is a numerical expression based on an individual's credit transactions over their lifetime. It represents the “creditworthiness” of an individual, with the information behind your score coming directly from credit bureaus.

Lenders, such as banks and credit card companies, use personal and business credit scores to evaluate the potential risk posed by lending money to an individual or organization. 

Good credit (670 to 739 FICO score) opens doors to the best interest rates on home loans, auto loans, and other lines of credit. It can also qualify you for premium rewards on credit cards or early repayment discounts on business loans.

Alternatively, a bad credit score could disqualify you from favorable rates and terms, leaving you stuck with high-interest rates, collateral requirements, or other subprime offers. For this reason, it's important to prepare for credit score checks accordingly. 

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Credit scores and credit scores checks are important because they affect a consumer's ability to borrow money. If you have a high credit score, you're more likely to be approved for a loan with favorable terms — that is, a low-interest rate and repayment periods tailored to your needs.

If you have a low credit score, you may not be approved for a loan at all, which can bring your organization’s growth to a screeching halt. 

Here are a few things that impact your credit score:

  • Your payment history
  • Your outstanding debts
  • Length of your credit history
  • Amount of credit accounts you own

If you are approved for a loan with a lower credit score, you're more likely to pay a higher interest rate than someone with good credit. Interest rates are more than just a hurdle to securing the funds you need to grow;

They’re also how lenders protect themselves against defaults and missed payments. If your credit score is low, you’re statistically more likely to default on your debt obligations, which translates into higher interest rates.

This obviously isn’t true for every individual, but lenders could treat you as such once they see you have a low credit score.

If you're planning to apply for a loan, it's important to know your credit score in advance. This will prepare your for thorough credit score checks. You don’t want to find yourself dealing with a decline on an important application, but by checking your score beforehand, you’ll have a better understanding of your ability to qualify. 

2. What Do Credit Check Companies Look For When Doing Credit Score Checks?

A credit check, otherwise known as a credit inquiry or credit pull, describes the formal process taken to evaluate an individual’s credit score.

Your credit information isn’t publicly available, of course, so lenders and other organizations will use credit checks to appraise your creditworthiness before making a decision on your application. 

One of the things they'll look at is your credit history, including any information on loans or credit cards you’ve had and your overall payment history.

They'll also look at your credit score, which is a number that indicates how likely you are to repay credit. If you have a high credit score, that means you're considered a low-risk borrower, and you're more likely to be approved for credit.

Credit check companies also look at public records when they're considering someone for credit, including information on bankruptcies, foreclosures, or judgments against you. If there's negative information in your public records, it can make it harder to get approved for credit.

Finally, credit check companies may also consider other factors when deciding whether to give you credit, like your employment history or annual income. If you have a stable job and a good income, that can make you a more attractive candidate for credit.

3. What’s the Difference Between a Hard Credit Pull and a Soft Credit Pull?

A credit check is an inquiry into your credit history. There are two types of credit score checks: hard credit pulls, and soft credit pulls

Hard credit pulls are inquiries that are made when you apply for credit, such as a mortgage or a credit card. These inquiries can lower your credit score and remain on your credit report for two years. 

Soft credit pulls, on the other hand, are inquiries that are made when you check your own credit report or when companies check your credit for pre-screened offers. These inquiries do not affect your credit score, and they disappear from your credit report after one year.

4. How to Prepare For Credit Score Checks

Checking your credit score is an important part of your financial health, but simply checking the number isn’t enough to improve your score.

You’ll have to make consistent efforts to strengthen your credit, which won’t happen overnight. Fortunately, there are a few simple steps you can take to get your credit score in the best shape possible for credit checks, such as:

1. Make Consistent, Timely Payments

Make sure to pay all of your bills on time month after month. Neglecting your credit card bills, utilities, rent, and other outstanding obligations can all negatively impact your credit score, causing you to endure a serious financial headache later on in life.

2. Keep Your Credit Utilization Low

Some people see the limits on their credit cards as the most they can spend on that card, but you shouldn’t necessarily hit that limit unless it’s a dire need. Instead, you should try to stay below 30% of your credit limit on any given credit card.

Using more than this can make it difficult to manage your repayments, which is a slippery slope toward a lower credit score.

3. Review Your Credit Report Regularly

You're entitled to one free credit report per year from each of the three major credit bureaus. You should absolutely take advantage of this service, especially if you haven’t checked your score in a while.

When you view your report, review all the information carefully to ensure accuracy. If you find any errors, dispute them with the credit bureau in question as soon as possible.

4. Don’t Open New Credit Accounts Unless You Need To

Opening a new credit account causes a hard inquiry on your credit report, which can temporarily lower your score. So, only apply for new credit when absolutely necessary.

5. How to Increase Your Chances of a Business Loan Approval When Doing Credit Score Checks

If you’re planning to apply for a business loan, there are several things you can do to increase your chances of approval. Here are a few recommended options:

5.1. Check Your Credit Score Beforehand

As stated above, checking your credit score BEFORE submitting your application can help you ensure your creditworthiness meets the lender's qualifications.

By doing so, you can avoid waiting months for an eventual decline, which saves you both time and effort. If you find that your score is less than you had hoped, you can proactively strengthen it by making consistent payments, speaking with your credit card company, and avoiding any hard credit pulls.

5.2. Preemptively Gather Your Documentation

You’ll need to supply an abundance of documentation to your lender through your application, including your business bank statements, credit information, and other financial documents.

It’s a good idea to have this information readily available as you navigate through the process, but it’s especially important if you’re applying to multiple lenders.

5.3. Work With a Marketplace

Researching multiple lenders and applying for their programs will take time, which few business owners can afford to waste. Fortunately, marketplace lenders are a solution to this issue.

Instead of sending out applications for different lenders one by one, you can apply to multiple lenders with one application, allowing you to sift through your approvals and accept the one that best suits your needs.

Get In the Best Shape For Credit Score Checks and Credit Approval With National Business Capital

Your credit score will either help you or hurt you, depending on the number, but you should remember that it’s a dynamic measurement that can change over time. Millions of people have gone from poor credit scores to near-perfect credit with some proactive steps. You’ll have to put in the effort, of course, and ensure that you’re making the right decisions every day.

However, a bad credit score won’t disqualify you outright in the business financing world. At National, we’ve helped thousands of individuals with less than favorable credit scores secure the funds they need to take their businesses to the next level. We don’t perform hard credit pulls either, so you don’t have to worry about our credit checks further damaging your score. 

Our expert Business Finance Advisors are problem-solvers at their core, and they can find creative solutions to your challenges through our 75+ lender marketplace. Complete our digital application today to see the opportunities that await your business.

FAQs

What Is the Easiest Loan to Get Approved For?

SBA microloans are among the easiest loans to reach an approval, but equipment financing comes up as a close second. With equipment financing, you don’t have to have a high credit score or a lengthy time in business.

As long as you can show the lender that you’re capable of repaying the borrowed amount within the term, you likely won’t have difficulty reaching an approval, but this depends on your specific circumstances.

What Is a Good Credit Score?

Credit scores fall into four general categories: fair, good, very good, and excellent. A fair credit score falls between 580 and 669, while a good credit score is anywhere from 670 to 739. Very good credit scores range from 740 to 799, and anything above 800 is considered excellent.

Where Is the Easiest Place to Get a Loan?

Your ability to secure a business loan will depend on your business’s financial information, the amount you’re seeking to borrow, and the lender you’re dealing with. If you can boast strong annual revenue, a high credit score, and a lengthy time in business, you likely won’t have difficulty securing financing.

Generally, the easiest place to get a loan is through a marketplace, as they can submit your information to multiple lenders simultaneously and receive multiple offers for you to choose from.

Does “Pre-Approved” Mean You’re Approved?

A “pre-approval” means that you’ve moved past the first stage of the screening process, but it doesn’t necessarily mean that you can receive your funds on the same day.

This is merely the first step in the process, and while it’s great that you were approved, you’ll still need to sift through your offer and determine if it fits your specific circumstances.

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National Business Capital helps entrepreneurs secure quick and fair financing to save time and cultivate sustainable growth.

Our stress-free online platform is designed for simplicity and speed, helping business owners go from application to approval in a matter of hours. And while we remain a leader in the Fintech industry, our clients agree it’s our personalized service and award-winning team that sets us apart.

From SBA loans to lines of credit, to equipment financing, and more, business owners can access all the different financing programs available to them in one place. Through our streamlined process, we have helped clients secure $2 billion in financing since 2007, and, more importantly, we’ve helped entrepreneurs save a tremendous amount of time and grow faster.

About the Author, Lauren Coppolone

Lauren is the Marketing Manager at Nationalbusinesscapital.com. She has 7 years of professional experience with a focus on small business marketing and finance. She previously worked as a senior business analyst for B2B SaaS, Sky IT Group. She has covered topics including, business financing, startups, retail, taxes & regulations, etc. Her work has been featured by USA Today, Google & Yahoo News. Lauren holds a B.A. from the Fashion Institute of Technology’s (FIT) School of Business.

https://www.linkedin.com/in/laurencoppolone/


Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advice from National Business Capital and the author. Do not rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely on this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there may be errors, omissions, or mistakes.