Obtaining the funds to begin your carwash may be one of the most boring and stressful parts of the process, but it is also one of the most important. Most entrepreneurs don’t have stashes of cash built up to open their businesses, so they rely on startup loans. If lenders see carwash owner hopefuls as high-risk, however, the dream of opening a carwash may be gone, or at least stalled.
According to the Santa Fe New Mexican, “While the score is only one metric of financial stability, it can determine whether the business gets the loan at all, how much it can borrow and what interest terms it can expect.”
Business owners should be aware of their scores and fix any issues before they apply for loans. Bills should always be paid on time, and professionals can get help when managing money, states the article.
Lenders look at Fair Isaac Corp. (FICO) scores to determine whether they should approve loans, notes the article. Five elements make up the score, which are assigned different percentages to make up the total number. According to the article:
- Payment history represents 35 percent
- Total debt accounts for 30 percent
- Length of credit history is 15 percent
- New credit accounts are 10 percent
- Types of credit are 10 percent.
The highest risk for lenders are those with scores lower than 579, reports the article. About 20 percent of consumers have scores in this category.
Below-average credit is considered scores from 580 to 669, said the article. Most banks require a minimum score of 600. In addition, the article notes most lenders consider 670 to 739 to be an average score.
The top 40 percent of consumers in the U.S. have scores between 740 and 799, shares the article, while the top 20 percent have scores between 800 and 900.
Not only will a higher FICO score get you approval on your loan, but it can get you a lower interest rate and better terms on the loan as well.
To keep your score strong, monitor accounts to make sure there are no inaccuracies, outdated information or suspicious activity, states the article.
“[Inaccuracies] can lower a credit score enough to cost tens of thousands of dollars over the life of a loan or place a loan out of reach,” notes the article. “The savvy business owner will use all available tools to monitor and improve credit health.”
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