Why Is Personal Credit Score Vital When Applying For Business Credit Cards?

Posted by on July 26, 2019 in Stuff with 0 Comments

When you apply for a business credit card, your business track record and the payment history is as much important as your personal credit score. It is because even though it is a business credit card, the liability of credit lies with the individual cardholder. Moreover, it is not mandatory to use business credit cards for meeting business spending only because you can use it for personal purchases too. The link between a business credit card and personal credit score becomes more evident when the card-issuing company puts up a hard inquiry to check your credit history, and it temporarily lowers your credit score.

Credit cards and credit score

As credit cards help to build the credit score that determines the financial soundness of people, it acquires even much more importance.  To build your credit score from scratch, you need a credit card first. The first transaction you undertake ticks off the first credit score that keeps growing as you continue to use the credit card. Using multiple credit cards increases the chances of improving the credit score quickly. However, you must use credit cards responsibly and make timely payments to improve your credit score. Failing to manage credits efficiently can lead to delayed and missed payments that not only results in monetary losses but also damage your credit score.

The credit score is significant even when you are trying to get a new credit card. Credit card companies use the credit score as a yardstick to judge your financial discipline. Good credit scores indicate that you are a responsible borrower capable of making timely payments and a sign of your creditworthiness. When you have a good credit score, it enhances your purchasing power whether you buy a house, car, or anything else. Whether you are using Fingerhut Credit or any other source for shopping, a good score will only help you.

A credit score is also essential for job seekers as many companies use the credit score to judge the candidate's dependability.  However, despite your best intentions, there can be times when financial challenges become too much to handle and difficult to maintain a good credit score. In such situations, many credit card companies would turn down your request for issuing a new credit card.

Get a credit card even if you have a poor credit score

The situation might seem quite discouraging and frustrating as your efforts in getting a new credit card goes in vain, but there are ways to circumvent the problem. People with poor credit score have two options of getting new credit. They can obtain secured credit cards by paying some deposit that helps to overrule the requirement of a good credit score. They can also go for a credit card that unlike secured card does not require any security deposit or good credit score. These cards offer an actual line of credit to account holders. The user must pay annual fees and other fees charged on the first bill while enjoying a slender line of credit for purchases. As you pay down the balance the credit card company considers it as a sign of your creditworthiness or dependability and expands the line of credit.

The consequences of poor credit score

The consequences of poor credit score that leads to poor credit history can have a far-reaching impact on your finances and financial future. It is not only that getting credit cards and availing lines of credit become difficult for someone with poor credit score but is also shows your image as a borrower in very poor light.  Lenders treat people with a poor credit score as high-risk borrowers, and borrowing money can become very difficult. In most cases, lenders will be reluctant to lend money to people with bad credit. Even if some lenders agree, they will charge high interest and even higher fees.  Known as subprime loans these will only increase the burden of debts that can further damage your credit score. Less than satisfactory credit score will be a deal-breaker if you are seeking mortgage loan.

In this context, it becomes crucial to understand the credit score from the right perspective. Although we speak about it too often, many people do not have a clear idea about it.

What is credit score?

The leading credit rating agencies Experian, TransUnion, and Equifax keep tracking credits and compile the credit history of individuals. Based on the credit history, the companies declare a three-digit credit score that reflects the creditworthiness of individuals. Lending companies use the credit score to decide if they should give credit to you.  A credit score is a measure of risk that lenders have to face. A higher credit score indicates that the person is a reliable borrower who would be eligible for credit at better rates and terms. Credit score allows lenders to evaluate borrowers, and even borrowers would know how lenders look upon them and what would be the chances of availing credit.

Credit score and credit rating

In addition to ‘credit score,' you must have heard about another term' credit rating’ that is very common to the financial market. People often assume that the terms' credit score’ and ‘credit rating’ are the same and use it interchangeably. However, there is a slight difference between the two terms because what credit score is to individuals; credit rating is the same for businesses. Credit score uses a range of numbers to represent the creditworthiness of individuals. Credit rating, on the other hand, uses a different scale represented by alphabets ranging from AAA to D, which is the lowest level and implies default.

What is FICO score?

FICO score is the credit rating system devised by Fair and Isaac Corporation. It uses a scale of 300 to 850 and is the most commonly used credit score, which is why people use the term FICO score as a substitute for credit score. Higher is the FICO score better is creditworthiness and less risk for lenders.

There might be various reasons for a poor credit score, but by using credit cards wisely, it is possible to rebuild the score once again.  You can create a new credit history that opens up new opportunities for building your finances once again.

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