Elizabeth Karwowski founded Get Credit Healthy to help individuals improve their credit health. She is also a volunteer with SCORE and she will be leading a workshop called "Understand and Improve Your Credit Score" on Thursday evening in Davie. More details are here. One of her colleagues will be leading a workshop in downtown Miami for SCORE on Saturday morning. Details are here.
Elizabeth wrote this guest post for The Starting Gate:
Due diligence can be defined as ‘appropriate carefulness.’ Today, more than ever before, shopping for small business capital has become a greater challenge to those seeking to breath life into their ventures. As standard practice, lenders ‘pull’ the individuals credit report and from there review the business financials to determine suitability for a loan. Failure to receive funding quite often is not caused by business heath or potential, but a low under 675, personal credit score.
Most lenders in the USA use FICO Scores to determine credit worthiness and the interest rate they should charge. By assessing variables within your credit history, a calculation is made and a number applied to your account. The average is 650 with a range extending to 800. The higher the number, the better the credit risk and the easier it becomes to access credit.
How often you make payments and paying on time every time is the largest single factor lenders consider. It demonstrates repayment responsibility.
In the FICO model past payment behavior accounts for 35% of your credit score.
The amount you owe, the total of all your outstanding debt, accounts for 30% of your score and is the second most important consideration lenders use when evaluating credit risk.
Credit behavior and consistent repayment history over time is worth 15%. While the amount of new credit that you carry 10%. Multiple recent credit lines suggest financial difficulty tending to lower your score. Applying for credit lines should only be done when absolutely necessary. Avoid credit cards that offer a period of no interest just for signing up. Tabled on your report, they can lower your score.
The final 10% of your FICO score is determined by your credit mix. A variety of revolving credit from various lenders, serviced on time every time, indicates that the borrower is able to manage his debt and accordingly is less of a credit risk.
The mistake made by many small business owners when, shopping for credit is not knowing their personal credit history and credit score.
A clean bill of personal credit health provided by your credit report is a must. Without it, small business loans will be extremely difficult to come by.
Elizabeth Karwowski is founder, president and CEO of Get Credit Healthy Inc., a consumer-advocacy organization, to help individuals improve their credit health. She has FICO and Fair Credit Reporting Act certifications. Karwowski is also a volunteer counselor and workshop presenter for the business nonprofit SCORE.