Why Does My Lender Want to Know My Personal Credit Score?

When applying for a small business loan or looking in to business loan consolidation, you may ask yourself a relatively common question:

Why does my lender want to know my personal credit score? 

The quick answer is your personal credit score is an indicator to a potential lender of how well you manage your money.

Businesses that have been around for less than five years haven’t had the opportunity to establish a healthy, strong business credit yet. Because of this, lenders have to look to other places to see whether you are a good candidate for a loan. Your personal credit score will be a good indicator of how well you handle your finances and pay off outstanding debt.

There are three major credit bureaus that potential lenders look to when analyzing your credit score: Experian, Equifax and TransUnion.

Today, there are also a number of free credit report websites that offer a complimentary score including Credit Karma and FreeCreditReport.com. However, most of these types of sites give only one of the 3 credit scores.  Lenders use the middle score to determine rate and loan approval.  If someone receives one score, let's say 710, they might think they were set.  But if their other scores were 662 and 679 and the loan program required a 680, they'd be out of luck with a traditional lender.

By regularly checking your person credit score, you will have a good gauge of where you stand financially, as well as the likelihood of obtaining a low interest loan.

To lenders, your personal credit score is a good indicator of how you would be as a borrower. Although your credit score plays a major role on obtaining bank loans, small business alternative lenders tend to look further in to your actual business to determine whether you would be a good fit or not. Regardless, here is a guide to how your personal credit score would look to your potential lender:

 Above 800: Excellent

With a personal credit score of above 800, you’ll be a perfect loan candidate to lenders—you’ll be offered the best interest rates and most favorable terms.

 720-799: Very Good

You are a low-risk borrower and can go just about anywhere to get a loan. You’ll have no problem at the bank and should expect excellent interest rates as well as great terms.

 680-719: Good

This is considered a good score and should make it possible for a borrower to see solid approvals and pretty good interest rates.

 620-679: OK

Most lenders consider this a moderate risk credit score. Although you may be able to find a small business loan, it will likely not be attached to a low interest rate. You should expect to pay a moderately high interest rate.

 580-619: Poor

This is considered a high-risk credit score. A borrower in this range should expect to pay a high interest rate and it’s unlikely you’ll land a loan through the local bank.

 Below 579: Bad

Although there is financing available for borrowers with a credit score in this range (many online lenders are happy to work with borrowers if they have a 500 credit score if other conditions are met), it’s considered a very high-risk score and will probably come with a high interest rate. A traditional loan from a bank or credit union is probably not an option.

Having an understanding of your personal credit scores and what it tells potential lenders will help you to decide whether or not you’re a good candidate for a loan, or at the very least whether you should seek out a loan through a traditional bank or an alternative lender.

At Mayava Capital, we know that your personal credit score isn’t everything. Because we want to do what we can to help you succeed, we make sure to look at your business picture as a whole. That includes your time in business, cash flow and the industry you’re in. Mayava uses a consultative approach to determining your candidacy for our lending partners, and we are always honest and upfront with potential borrowers.

Accepting small businesses online loan applications with a personal credit score between 550-850, Mayava Capital won’t turn you away when others do.