The Keys to Good Credit and How it Can Benefit Your Business

As business owners plan to purchase sweeping equipment, trucks, or other machines to fuel business growth in 2024, it’s helpful to understand the decision-making process that qualifies an applicant for an equipment loan. As a direct lender in business for over twenty-five years, Oakmont Capital Services is happy to “pull back the curtain” on our credit process to encourage borrowers to set themselves up for success.

Breaking Down (Personal and Business) Credit

When you hear the word “credit,” what comes to mind? You might feel uneasy if you’re one of the 4 in 5 Americans trying to improve their credit score. (Source: NerdWallet) It’s understandable – a lot is riding on the rating system. It’s a summary of your financial past and present used to determine your fiscal future. Before we get too meta, let’s start with the basics:

1. A business owner’s credit score is crucial when applying for an equipment finance loan or growth capital.
2. There are two types of credit: personal and business.
3. Three central personal credit reporting agencies exist: Equifax, Experian, and Trans Union.

Various accounts can report to your personal credit (a.k.a. credit bureaus). How you manage these accounts is how reporting agencies determine your credit score (a.k.a. FICO), a number between 0 and 850. The higher the number, the better your credit.

Personal and business credit are calculated based on the following factors:

• Payment History. On-time is good and late is bad. It sounds too simple, but it’s true.
• Negative Information. Life happens, but avoid delinquencies, bankruptcies, and foreclosures to improve your score.
• Credit Use. You are in good shape if you use your credit responsibly (no more than 30 percent of your credit limits). (Source: NerdWallet)
• Length of Time. The longer you have had (good) credit (credit cards, student loans, auto loans, mortgage loans, etc.), the more stable your profile, which helps you become a desirable loan candidate.

The primary difference between personal and business credit focuses on the types of purchases involved in calculating their related score.

Personal credit includes:

• Personal Credit Cards
• Mortgage(s)
• Personal Auto Loans
• School Loans
• Debt

Business credit is like personal credit but is specifically linked to a business. This type of credit involves:

• Establishing the Business. Corporation, LLC, Sole Proprietor – whichever it is, take this first step. It is how you separate your personal and business finances.
• Setting Up an EIN. Also known as an Employer Identification Number, it is the equivalent of a Social Security Number for your business.
• Creating a Bank Account in Your Business’s Name. Once established, apply for a business credit card and use this account for business charges only. Conversely, don’t use personal credit cards for business purposes.
• Applying For and Acquiring Business Loans. Equipment financing, working capital, small business administration loans, business lines of credit, business credit cards, etc.

The OCS Credit Process

At Oakmont Capital Services, customers begin the credit process by completing an online application. Next, our credit analysts will personally review your credit score(s), which considers all the factors outlined previously. Our internal review will help our team determine if you are a viable loan candidate. If you are approved, your credit score will impact the interest rate and terms you receive – the stronger your profile (considering business and personal credit), the better chances for a lower rate and longer term.

Money Please: Tips for a Good Credit Score

The adage states: “You need to spend money to make money.” Our finance professionals would like to adjust this classic sentiment to: “You need to have good debt to acquire loans and grow your business.”

Consider the following tips for maintaining or rebuilding a good credit score, whether it’s personal or for your business:

• Punctual Payments. Set up auto-pay on your account(s) and avoid fees/penalties.
• Stay Patient and Positive. If you have a negative credit history, know that you can always rebuild it over time with discipline.
• Check On It. Monitor your business and personal credit report(s) to be aware of potential issues and ensure accuracy.
• Credit Card Balances: Keep’em low or, even better, pay off your credit card statement as often as possible to carry a zero balance.
• Diversify. Think of it as a financial buffet with a little bit of this and a little bit of that to create your ideal credit score. For example, two store credit cards, a car loan, and one regular credit card are all accounts that show lenders you can manage various types of credit responsibly.
• Seek Advice. Ask the right people questions to get the most accurate answers and reduce the possibility of a less-than-ideal credit situation. The right people = an accountant, a tax attorney, or a financial planner.

Putting Your Good Credit Foot Forward

Take great care when managing your personal and business credit scores. Although they are separate, they are both important when it comes to determining your financial standing. As a business owner, qualifying for loans with favorable terms can be a game-changer for business growth.

For more information on building business credit or applying for a commercial loan, contact an Oakmont Capital Services finance professional at 877-701-2391 or ocs@oakmontfinance.com.