An entrepreneur's credit history plays an important role in their chance to successfully
secure business capital. The
higher the credit rating, the greater chance they have to obtain financing for their
new business. Therefore, it is extremely important for an entrepreneur to keep track
of their credit score and the information that appears on the history.
Credit score and funding
Every person has a credit score based on three credit bureaus: Experian, Equifax,
and TransUnion. These scores may/may not vary widely from each other, depending
on the data that is collected from different credit agencies/sources. Entrepreneurs
are encouraged to meticulously check their credit report for accuracy and repair
any discrepancies before seeking funding
because it could mean the difference between being able to successfully obtain the
desired financing and being rejected.
An entrepreneur’s credit score will be referred to by almost every
business investor who is interested in a given business proposal. When a
prospective opportunity arises, the business investor will often conduct a due diligence
check of the business owners(s), including their credit history. All information
obtained from the credit report will be thoroughly reviewed and used in the assessment
process. More and more
venture capitalists and angel investors refer to this information because
it gives them an estimated level of investment risk.
Credit report tips
The three credit bureaus encourage new business owners to keep periodic track of
their credit reports to make sure that no errors show up. Business analysts suggest
checking the credit report from the three agencies at least twice a year to remain
up-to-date with their information. Business investors
can also use the yearly free credit service report for their own records.
New business owners also need to make sure that they maintain credit cards within
their limits and do not have any overdue outstanding balances on any one of them.
entrepreneurs should not cancel if they have numerous credit cards. The
reason for this is that the entrepreneur’s credit score depends on the line of credit
open as well as the length of time that they have been open.
The best way for new business owners to maintain their credit report is to pay all
owed debt on time. Nothing can damage an
entrepreneur's credit standing more than making late payments, particularly
on big loans such as mortgages and automobile payments. This is why it is extremely
important for entrepreneurs to get their payments in on time.
New business owners should also monitor their credit problems. An
entrepreneur who deferred on a student loan payment will find that the deferred
payment will appear on the credit report for several years. However, the entrepreneur
needs to follow this and make sure that the information is removed from the credit
report at the end of that period so they can show investors they are current with
all debt owed.
The credit report is a very important factor in determining one’s chance of borrowing
money. In the same respect, it is a heavily weighed criterion investors and lending
institutions use when granting business capital to
entrepreneurs. Prospective business owners are encouraged to regularly check
their credit history and score with the three major credit bureaus and to fix any
errors that may appear. Repairing one’s credit history may be time consuming since
entrepreneur has to contact each agency and document the inconsistent findings.
However, it is a step in the right direction and an excellent way to effectively
improve one’s credit score.