Your Credit Score is More than Personal
Friday, May 23, 2008 by Mike Chatas
Fifteen years ago I was sitting at the loan committee table as a credit analyst marveling at the “masterpiece” credit approval memorandum that I had created for one of my loan officers. The document was full of all the fancy ratios and analysis that all of my MBA counterparts wanted (or so I had thought).
The commercial loan manager leaned over to me and said, “Hey Mike, I know you like this deal a lot, don’t you? After all, you sure did spend a lot of time analyzing this credit. But tell me, what gets you excited about this one?”
I eagerly began to go through all of my hard work, showing him my cash flow, collateral, and financial ratio analysis. Almost immediately he began to shake his head and smile. “Thanks for the hard work, don’t worry, I like this deal, too. But I like it for a different reason. It’s not because of that, though.” he said as he pointed to my work. I like this deal because of this.” I looked down at what he was pointing at. He was pointing at the applicant’s 800+ credit score!
I quickly learned the following from this mentor: a prospect might have incredible corporate cash flows, ratios, and collateral; but if the project sponsor (business owner) doesn’t have good personal credit, you don’t have a deal.
Why? Think about it for a moment. With small business lending we deal with individual project sponsors and their willingness to pay us back — not CFOs and nameless shareholders. Business owners with better personal credit tend to do a better job paying off their business obligations as compared to those who have worse credit.
One of the biggest myths about small business lending is that personal credit bureaus don’t matter. “What does my personal credit matter?” we oftentimes hear. “My business is profitable! We can cash flow this deal!” Yes…but are you willing to make your loan payments?
In just about any credit environment, poor personal credit is the number one knockout factor that lenders are not willing to look past. Why? Because it says a lot about the person’s character. If a business owner is willing to take care of his or her personal obligations, regardless of what the economy or business is doing, it says a lot about that person.
In fact, good personal credit is the number-one mitigating factor that allows lenders to get comfortable with just about any deal that might have deficiencies in the borrower’s repayment capacity, collateral, capital, or market conditions.
What you can do:
- If you don’t know your personal credit score, get a free credit report by going to any of the following credit reporting websites:
- Look for the following on your report:
- Is your score less than 680? If so, look for derogatory comments. The bureaus will list why your score is less than perfect.
- Look for any public records, liens, and other comments.
- Look for any collection accounts that are tied to your name
- Work diligently to get the derogatory items removed from your report. Even if it’s a medical claim, you are best served to get all outstanding items paid off.
- Lingering disputes from creditors can kill your credit score. Tackle each dispute head-on and resolve all of them.
If you need help, try the following site: The Credit Law Group www.creditlawgroup.com
Questions, comments, or concerns? Write us! We’d be happy to help. contact@unitedstructuredfinance.com.
When I go to some of the free credit reporting sites I get a bunch of information but no score!
I've seen some sites that let you sign up and pay for the score, how come a credit score doesn't always come with a free credit report? (or am I missing something!)
Hi Melissa:
All reports should show your Open and Closed Credit Lines, Payment History, Public Records, Derogatory Comments, Collection Accounts and other information about your personal credit. Those are the most important items.
I am little surprised that your score did not come up, but have heard this before. You might want to check out additional free reports if they are available.