One of the biggest hurdles for entrepreneurs is that they often don’t have enough capital to turn their ideas into actual businesses. This leads to a need for loans or financing from a bank. This can turn into a problem if the loan seeker has bad credit. If you have an idea for a business and your credit score is holding you back from getting business loan approvals, it’s essential that you get working to clean up credit for funding. Here are some of the steps you can take to get your credit score cleaned up and in good standing.
Clean Up Your Credit Report
Before you start trying to incorporate better credit-spending habits, there are a few things you can do to rebuild credit score from the get-go. The first option is to request a credit report and check it for errors. You may find that there are items mistakenly listed twice, or late payments that were actually paid on time. Credit reports tend to be littered with errors, so prospective business owners should look closely into making a list of what they can dispute. Your chances of starting a business should not have to suffer because of mistakes you were not responsible for.
Keep Checking That Report
With the now widespread availability of places to check your credit score without hurting your credit rating, you would be remiss to not take advantage of them. After all, they could assist you in meeting business loan requirements in the future. Be sure to use a website that provides scores from one of the three major credit-reporting agencies, Equifax, Experian and TransUnion. Sign up for these services by creating an account, and they will even remind you when it is time to check your credit report again. If you want to get yourself out of debt and repair credit ratings, you should always keep track of your credit score by checking your credit report online as often as you can.
Keep Your Balance Low
Another step you can take to improve your credit score immediately is reduce the amount of money you owe. Obviously, this is easier said than done, but keeping a low balance on your credit card is one of the best ways to maintain good credit. This will make you eligible for low interest credit cards to further lower reduce debt. Turn your attention towards cleaning up your existing debt, and stop using your credit card to avoid exacerbating the problem. You can reduce fixed expenses without hurting business performance. If you are trying to start a business and you are in need of capital, it would be wise to eliminate any pre-existing financial burdens anyway.
Pay Your Bills On Time
Your energy is going to be focused on improving and maintaining your credit score. Thus, it should be a given that you avoid doing anything to lower it. Late payments are a killer in this regard. That is why proper cash flow management is so important. Paying your bills on time should be a top priority. Set reminders for yourself with your phone or calendar, and plan your expenses ahead of time to avoid amassing a balance you can not pay later on.
Manage Number of Credit Lines Open
Opening a new line of credit in order to balance out your debt may sound like an enticing idea, but it will likely hurt you in the short term. The cost of debt is high. This is because your credit score is affected by the average age of your available credit lines. Opening a new one would make that average plummet. Simply work on handling the debt on your existing cards, and avoid closing older cards as that would also decrease the average age of your credit lines.
Keep Unused Credit Card Accounts Open
You can also clean up your credit score by keeping your unused credit card accounts open. During the process, learn how to lock credit reporting capabilities to prevent identity theft. Many borrowers deal with identity theft when attempting to clean up their credit scores. Many borrowers also close their unused credit cards in an attempt to better their credit. However, you can actually improve your credit score by leaving them be. You do not pay any annual fees on unused cards, so they are not harming your financial status. Furthermore, if you close an account, you will create a worse credit utilization ratio for yourself. As a result, your credit score will drop. Keep your unused credit card accounts open while trying to raise your credit score fast.
Having bad credit can single-handedly halt your ideas for a business from becoming a reality, but it should never be viewed as a permanent issue. Credit is something that builds over time, and many of the problems associated with bad credit can be alleviated with a little knowledge on the subject. Follow the steps listed above and clean up credit scores to get your business off the ground.