Understanding Personal and Business Credit
We talk a lot about how important it is to treat your business credit as an asset and how it’s one of the first things lenders look at when considering you and your business for a small business loan. In today’s podcast, we talk about a few simple things you can do today to positively impact your credit score.
We talk a lot about how important it is to treat your credit as an asset and how it’s one of the first things lenders look at when considering you and your business for a small business loan. In today’s podcast, we talk about a few simple things you can do today to positively impact your credit score.
The information you need, the podcasts you trust, this is the PatrickWiscombe.com podcast network. Bringing you interviews with top business professionals and business financing tips to fuel your American dream. This is the Business Fuel Podcast heard exclusively on Lendio.com. And now, here are your hosts, Ty Kiisel, and Patrick Wiscombe.
Sponsorship: This podcast is sponsored by Lendio.com. The online source you need to find the right business financing to grow your company. Check them out for free at Lendio.com to get your business growing right now.
Patrick Wiscombe: This is The Business Fuel Podcast. Good morning. I’m Patrick Wiscombe. Thank you for tuning us in and taking us along wherever and however you’re accessing the podcast today. Coming up today, we’ve never had him on as a guest, it’s Ty Kiisel. How are you, sir?
Ty Kiisel: I’m doing really good. How are you?
Patrick Wiscombe: Great thanks. We decided to do the whole podcast with you because we’re talking about credit repair.
Ty Kiisel: Yes. It seems like we’ve talked a lot about the 3 questions bankers ask. Can you repay a loan? Will you repay a loan? And what happens if something goes wrong? The second question, will you repay a loan, is extremely important, so it’s important that we give it some value. Tom Gazaway, a previous guest on the show, says that you should treat your credit as a valuable asset. And I totally agree.
Patrick: When you go to get a loan anywhere, there are 3 places you can check your credit. What are they?
Ty: For personal credit it’s Equifax, Transunion, and Experian.
Patrick: Have you noticed that credit reporting companies are becoming much more consumer friendly?
Ty: For somewhere around $40, you can join one of these companies. I personally have an account at Experian. They monitor my credit and flag me if something changes. I can access a monthly report from them, which includes Equifax and Transunion as well, which shows exactly what a lender would see if they looked me up. If you don’t know your credit score, it makes it very problematic to get a loan of any kind. Here’s an example, a man wrote in and said he got a high-interest rate small business loan. But he just bought a new truck and got it for 9% interest. That is obscenely high. There are companies offering 0% interest. Had he known what his credit score was, he wouldn’t have been so upset. He obviously had credit problems. If you don’t know what your credit score is, you shouldn’t be applying for a loan today. It’s going to impact how well you will be able to negotiate with the person you’re getting money from.
Patrick: Credit reports always seem to be that thing we blame. But you are saying we need to take care of those inaccuracies if they are truly inaccurate.
Ty: Yes. But I have to admit I have never seen them on my credit report. Usually, it’s those stupid things that I did that are reflected in the report.
Patrick: So that goes back to my question, are there really inaccuracies, or are people just blaming the system?
Ty: I’m sure there are a fair number of people who blame the system. But let me share an experience that one of Lendio’s founders experienced. There are 3 agencies for your personal credit score, and there are 3 agencies for your business credit score. This was in relation to his business credit score. Levi King was a founder of Lendio. He is now the CEO of a company called Creditera; they fix your credit. He was looking for a small business loan and his personal credit was impeccable. But he didn’t know he had to pay attention to his business credit score. He came to find out that one of the credit agencies had some debt assigned to him that shouldn’t have been. There was an error. Because of that, he didn’t get the business loan he was looking for. He had to prove that information on his business credit report was not correct. The lender assumed he was trying to hide something because he didn’t declare that particular debt. It is important to watch for those kinds of things. Particularly in today’s environment when there is so much identity theft. Someone could initiate a credit account based on your credit score and destroy your credit for you.
Patrick: I know one of the things you recommend is to eliminate unnecessary debt. That could be applicable to business or personal. Why is that?
Ty: It’s probably because of my age. I grew up in a small business family. My mom, dad, and I all worked in the business. I watched how my dad did business. If he didn’t absolutely have to have it, he didn’t buy it with credit. We were in the industrial supply business and we bought and sold a lot of nuts and bolts. They came in kegs that are 150 pounds. A forklift would have been a really convenient thing when we started, but we couldn’t afford it. But dad didn’t want to buy it because we could have the freight company come in a truck with a lift gate on it. It wasn’t convenient, but we would plan our delivery days on the days we could get a lift gate truck. We got away without a forklift for several years. When we did buy the forklift, he paid for it out of cash flow because it was a luxury we wanted. Main street business owners like my dad tend to be a little more conservative. There is an attitude in small business that you’ve got to get a lot of equity capital or financed capital, and you ramp it up to what it would be 10 years from now. You really have to weigh is this a necessity or is it something I can do without? I sound like my mother asking if I really needed to buy the baseball cards I really wanted as a kid.
Patrick: Do you think most businesses operate that way, or would they have just rushed out to get the forklift?
Ty: Businesses on main street know capital is expensive. It’s not like the tech industry where you have angel investors who are eager to leverage their capital into the next big thing. The dry cleaner down the street doesn’t have that. With debt financing, you’ve got to make a payment next month. I think there’s still a lot of businesses that operate that way. Unfortunately, they’re not the ones we usually talk about.
Patrick: A lot of people don’t know I own my own business. I have found that when you bootstrap, you actually find better solutions than what you were going to spend money on.
Ty: Let’s promote the Forbes piece because it fits perfectly here. I interviewed a small business owner in Layton, Utah who owns a bicycle shop. He is convinced that in the long run if you can’t afford to purchase it out of cash flow right now, you shouldn’t buy it. He says that you have no idea what if feels like to look at the inventory in your store and know that it is paid for. You’re not encumbered in debt for it. If it doesn’t sell today, it can sell tomorrow. I guess the fundamental principle here is, if you only borrow the money you need to borrow, it ultimately helps your credit report.
Patrick: A little thing that many people don’t consider, that really affects both personal and business credit, is just doing the daily stuff like paying your bills on time. It’s huge.
Ty: It’s kind of a no brainer but if you pay your bills on time, it makes a huge difference. Believe it or not, in the space of 4 to 6 months, you can increase your credit score by 100 points just by doing that. Just in my experience, there is no quick fix to your credit score. It takes discipline. And part of that discipline is paying attention to due dates. Particularly things like your business credit card and car leases or loans. I do know that if all your credit cards are maxed out, that does not look good for a potential investor.
Patrick: So let’s say you have a credit limit of $10,000 and it is sitting with a consistent balance of $9,995, that’s not good.
Ty: No. Lenders are going to look at you and say, “You don’t know how to manage your credit.”
Patrick: You advocate paying it off instead of moving it around. I’m assuming that’s what you mean by this particular item.
Ty: There are lots of people I’ve heard of who advocate that when the next offer comes around, move it over instead of paying it off. But my understanding is that a lot of people are wise to that now. Moving your balance around doesn’t not improve your credit as much as showing that you can access credit, pay it off, access it again, and pay it off again.
Patrick: You can actually have multiple credit cards. Is it good to have multiple lines? Or will they think this guy has access to too much credit?
Ty: The lender will look at the amount of credit you have available. If you have 6 or 7 credit cards and $30,000 available credit, it could raise some questions if you were going in to get a small business loan. What’s to say you wouldn’t max out your credit cards once you get the business loan and it would throw you into a death spiral. You want to make sure the credit available to you is reasonable and responsible. Just because you can, doesn’t mean you should. Don’t apply for every credit card offer that comes to you. Basically, you want to apply for new credit accounts as needed. Manage that responsibly. Credit cards can be incredible tools for responsible people. But they can also bring your business down. I have known a handful of people over the years who have been able to successfully finance their business with credit cards. And I have known a lot more who have failed because they got in a bind and paid only minimum balances and it just got out of control.
Patrick: So what I’m really hearing you say is, “Manage your credit responsibly.”
Ty: Yes. The first thing is to know what your credit score is. Pay your bills on time. Eliminate unnecessary debt. Because there is going to come a time when you need to grow and you’ll need to access capital. If you’ve got it all exercised in running your day to day affairs, no one will give you money to help you grow or get out of a bind. You’re going to be stuck because you’ve already used it to go out to dinner or whatever. Just remember that if someone tells you they have a quick fix for your credit, don’t believe it. It took a time to get into the fix you’re in, and it’s going to take a time to get you out. Like I said earlier, in 4 to 6 months you can increase your score 100 points just by paying on time. It’s not that hard, it’s just painful sometimes. The better your credit score, the more options you have.
Patrick: We’ll go ahead and wrap up this week’s edition of The Business Fuel Podcast. Ty is the author of the book, Getting A Business Loan Financing Your Main Street Business. He is an absolute genius when it comes to financing Main Street businesses. So do yourself a favor. Pick up the book on Amazon.com.
Ty: Genius is probably an overstatement, but buy two of the books. Thank you, Patrick.
Patrick: So for Ty Kiisel, I’m Patrick Wiscombe. Thank you for listening. We will talk to you next Tuesday.
Bringing you interviews with top business professionals and business financing tips to help fuel your American dream. This has been the Business Fuel podcast, with your hosts, Ty Kiisel, and Patrick Wiscombe, heard exclusively on Lendio.com