There are several things to consider before applying to any type of loan. Each and every requirement has its own importance and value. If anyone is left behind then it will become impossible to complete the process. All loan processes have one thing in common and that is a credit score.
Especially small business loans demand a specific range of credit score. One must think as to why do you need a credit score when you are applying for a loan? You will be surprised to note and read that it has more importance to complete the appeal of the loan.
What is a Credit Score?
To understand the significance of credit score, you must know the meaning of credit score. These are not any ordinary numbers that you might think, but they are the most important digits in your loan application. Credit Scores are evaluated by the lender to determine a lot of points;
- Whether you qualify for the loan or not.
- What interest rate to regulate?
- The amount you will acquire.
The credit score is not only useful for banks but also private lender gives importance to them. But to calculate the credit score there are distinct things to consider such as;
- History of your payments.
- The amount borrowed.
- How long you had the amount?
- Account type you have.
Two Kinds of Credit Scores for Small Business Loans:
Two types of credit score can be used to improve the approval of the loan procedure. Many of the people are of the view that only one of them has value but the reality is that the other one has equal gravity. The two kinds of credit score that are used for small business loans are;
Business Credit Score:
This credit score comes in use when your business has been working for at least 2 years but this demand can differ from lender to lender. When you borrow money on the basis on the business credit score then you have the benefit of having the score up to 300. This is because many of the borrowers are starting a new business so it is possible that they don’t have enough score.
Personal Credit Score:
When you take a loan on the bases on the personal credit score, the range of the score changes from 300-850. But the best point is 550 as it is demanded by most of the lenders. Folks around the world thought that business credit score is the only one that can get you a loan but now you know that personal ones also used.
Tips for Improving:
Orumfy is one of the online platforms that help the borrowers to improve the credit scores whether business or personal. Some of the tips are mentioned below;
- Always try to pay the bills on time.
- Plan ahead to avoid any type of misunderstanding.
- Submit the correct credit score.
- If you have made mistakes in the past then try not to repeat them.
Importance of Credit Score:
The credit score holds much importance in the process of a loan application. Many of the people don’t pay any attention to the value of credit scores. But it has great importance in the successful approval of loan application.
Applying for Further Loans:
There are several other loans that have a condition of having a credit score which is higher than the required range. So if your score doesn’t meet the accepted points then applying for that loan will become very difficult especially the long term loans.
Better Insurance Policies:
Many banks along with their loans provide insurance policies. If the credit score that you have is good then it is most likely that you can qualify for the insurance too. Several of the banks don’t give the policy to the borrowers but if there is one then a good score can help you in acquiring one.
The decision of Loan Approval is Quicker:
If you want that the process of the loan approval is swift then maintaining a decent score should be on the top of your list. The lender is always interested in the borrower who has a good reputation of paying back the loan amount and that is determined by the credit score he has. A good one means that he has been repaying the amount on time and according to the terms and conditions.
Affects the Interest Rate:
A lender is at risk when he gives the loan amount to a borrower because he is in a constant state of confusion whether the borrower will be able to repay the money or not. So if the score is a good one then the lender can be satisfied, otherwise, he will put an increased interest rate so that he can get some guarantee.
It must be as clear as crystal to you the reasons why credit scores are important to the loan application of small business loans. You will now no question about the significance that they have.