How Credit History Affects Your Merchant Loan Application

Taking out a merchant loan can be an exciting step towards the future. Starting your own business is something that should be applauded because it involves an entrepreneurial spirit and vision. However, once the time comes to get approved, you might be in for a surprise. With banks always being cautious with who they lend to, your credit history can have a big effect on the outcome of your loan. How does credit history affect your merchant loan application? Here are a few things to consider before you fill out your first application.

Credit Score

Your credit score is a great indicator of the type of borrower you will be to the banks. They can look at your credit report and find out everything about you. They will see how much debt you have, how many accounts you have open and whether or not you pay your bills on time. Starting a business is a big step for anyone and a good credit score is essential if you are going to get the money you need.

Business Credit Rating

If you have a less than favorable personal credit score, one way to get around this is to use a business name. When you start a business, you can develop a credit rating for the company itself. You do this by opening a few accounts with other merchants and paying your bills when you should. The businesses will report to the credit bureaus and your business now has a credit score. If you've been in business for a while and always paid your bills, you should have a pretty decent score. Therefore, you should apply for your merchant loan under your business name. The bank will ultimately decide based on many factors, but one big one is the credit score of the business. Use this to your advantage in securing a loan.

Payment History

One big way that your credit history will affect your merchant loan is with your payment history. Your payment history makes up over a third of your credit score. Therefore, if you have always paid your bills on time and never missed a payment, you should have a decent score. If you frequently skip payments or pay them late, your score will suffer. If you are trying to build business credit, this could be the most important thing you could possibly do. The bank will like to work with companies that are consistent. They want to know that your history indicates that you will pay them back in a timely manner.