For most small business owners, maintaining a solid personal credit score remains important at every stage of business growth. While some lenders place more emphasis on personal credit than others—especially banks and traditional financial institutions—most lenders still review your personal credit score when assessing a business loan application.
This applies not only to startups seeking their first loan but also to established businesses with years of operating history. Along with personal credit, business owners should also focus on building a strong business credit profile to improve overall funding options.
Your personal credit score reflects how responsibly you manage your personal financial obligations. Although some argue that personal credit does not directly represent how a business handles its finances, lenders often view it as a key indicator of financial behavior. Because of this, understanding how your credit score works—and how to improve it—can make a significant difference when applying for business funding.
How Your Personal Credit Score Is Determined
Credit reporting originally began with local merchants sharing information about customer payment habits. In 1970, the Fair Credit Reporting Act (FCRA) established federal guidelines to improve accuracy and fairness in credit reporting.
Later, in 1989, the FICO Score was introduced and quickly became the standard tool used by banks and lenders to evaluate credit risk. Your FICO score is calculated using data from the three major credit bureaus: Experian, TransUnion, and Equifax. Although all bureaus use a scoring range from 300 to 850, your score may vary slightly between them.
The FICO scoring model is based on the following core factors:
1. 35% – Payment History
This is the most important factor. Late payments, collections, charge-offs, bankruptcies, liens, repossessions, and judgments can all negatively impact your score.
2. 30% – Amounts Owed
This includes your credit utilization ratio, total outstanding balances, number of accounts carrying balances, and how much debt you have across different credit types.
3. 15% – Length of Credit History
Lenders consider how long you’ve been using credit. Older accounts and a longer average account age typically work in your favor.
4. 10% – Credit Mix
Your score benefits when you responsibly manage a variety of credit types, such as revolving credit, installment loans, and mortgages.
5. 10% – New Credit
Applying for new credit can temporarily lower your score due to hard inquiries. While rate shopping for mortgages or auto loans usually has minimal impact, frequent applications for revolving credit may reduce your score. According to Experian, inquiries remain on your report for up to two years, but usually stop affecting your score after one year.
Thinking About Starting a Remote Business?
There are more opportunities available today than ever before, and many aspiring entrepreneurs are exploring remote business ideas. The key is to start taking action now rather than waiting on the sidelines. If you have the vision and motivation, funding does not have to be the obstacle. Many entrepreneurs limit themselves due to financial concerns, but alternatives exist. With decent credit, options like Small Business Loans and No-Doc Loans may be available to help you move forward.
Our mission is to provide you with the knowledge, guidance, and funding resources needed to turn your idea into a successful business. If you’re ready to take the next step, visit our website or give us a call to explore financing options designed to help your business grow and succeed.
Unsecured Finances has over 10 years in the consulting business! We specialize in educating and assisting clients on acquiring Unsecured Business Loans and Start-Up Business Specialty Loans, including Unsecured No Documentation (No-Doc Stated Income) Loans, Unsecured Business Loans, and Unsecured Start-Up Business Loans and Lines of Credit from $10,000 to $500,000 without Assets.
Apply on our website to find out if you qualify, or call today for a free consultation: 1-888-294-2584
