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Talking credit with Mike Strathman: Credit history
Wells Fargo's Small Business Division lending manager shares what lenders want when it comes to your financial track record.
What do lenders want when it comes to your financial track record?
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Credit history is one of the most important Cs of the five Cs of credit. It's going to show me who you borrowed from, how much you borrowed, what the payments are, what the current balance is, do you pay your creditors as agreed, do you carry reasonable balances on your credit cards and lines of credit, and did you make the payments on time. I want to see a proven track record that you can responsibly handle credit over an extended period of time.
Why should small business owners care about credit history?
We can't make an informed decision to lend a small business owner money today that he or she will pay back at a later time if I don't have some comfort they're going be able to do that.
What happens if you see a blemish on somebody's credit history? What does that say to you?
That's where I'm going to dig in a little bit to see how many and how recent and how large? If I see several late payments on multiple accounts, say five or six years ago, then I'm going to ask, "OK, what happened five or six years ago where all these blemishes happened simultaneously?" If I see one or two small blemishes that appear to be what we call out of character and everything else looks good, then I'm fine.
What tips do you have for small business owners about managing their credit responsibly?
Well, it starts with make your payments on time. If you have bank credit cards, keep the balances low relative to their credit limit. The same thing would apply to a line of credit. And for car loans and mortgages, again, just make sure you make the payments on time.