Although your credit score is useful, it may not necessarily provide a whole picture of why you have poor business credit. Each credit profile is unique, and although late payments and collections status can play a key part in deciding how your credit is scored, specifically a negative credit score, there are additional variables that might contribute to a lower-than-desired score.
Personal Credit Issues:
If you’re starting or your firm is relatively young, you haven’t had much time to establish a business credit history. As a result, most new company owners requesting a loan will have their personal credit history scrutinized. If your personal credit history and score exhibit the characteristics of poor or extremely bad credit, your business credit will reflect the same.
Minimal or no history:
As previously stated, if you are a prospective or new business owner, your company will not have a strong (or any) credit history. This will not inevitably get you in trouble, but it will impede you from earning outstanding credit. Making on-time or early payments is the best approach to cope with this – if your company account is plagued by late payments or an account in collections, it might be enough to place you in the negative business credit area.
The structure, size, and industry of your firm may all affect your business credit score. Certain sectors (for example, the restaurant industry) are intrinsically risky than others, and small businesses are judged riskier than those with more than a few workers. Again, the ideal solution is to make on-time or early payments to demonstrate that your company is trustworthy.
Credit Utilization is High:
Your available credit, when combined with other credit elements on your credit report, might influence where you fall on the credit score ranking system. Suppose you’re using a substantial amount of your available credit, looking for additional money, and failing to fulfill payment deadlines. In that case, potential lenders may see you as a high risk.
What Effects a Low Credit Score Can Have
While having a solid personal credit score or business credit profile does not ensure you will be approved for a small business loan, it will provide you with possibilities that poor credit history cannot. A low credit score does not exclude you from being authorized for financing, but it will almost certainly imply higher interest rates, fewer advantageous conditions, and more frequent payments. This isn’t always the case, but if you have a bad personal and company credit history, you won’t be able to get the best interest rates or loan conditions.
How to Fix a Bad Credit Score
Fortunately, you can develop a great credit profile or improve an existing one. There is no fast fix—slow and steady wins the race—but you may be surprised at how much and how quickly you can improve both your personal and company credit scores if you think in terms of months rather than days. Furthermore, I would not believe anybody who promises to be able to fix a negative credit history quickly. No gimmick hasn’t been seen previously by the credit bureaus. For example, moving credit accounts around is obvious and may harm your credit restoration attempts.
As a result, here are four actions you can do right now to repair your credit:
Keep track of your credit:
It’s human nature to have a good influence on the things we pay the most attention to. I’ve had personal contact with Experian for many years, and I examine my credit score every month (which is not too frequent, by the way). For a nominal cost, all of the main agencies provide comparable services for both personal and commercial credit. Nav offers free credit monitoring for both personal and commercial accounts. This is the place to begin.
Separate your personal and business credit accounts:
You’ve probably heard it before. Company owners often use personal credit to pay for business expenditures. This is especially true for new enterprises that have not yet developed a solid business credit record. Although there may be instances when it is convenient, and I must confess that I have done it once or twice as a small company owner, it is a mistake.
Running up company spending on your card will not help you develop your business credit and may even harm your score—even if you pay the bills off every month. The opposite is also true. It’s also a bad idea to mix your company and personal money by paying for personal needs using corporate credit. Keep your personal and professional credit and money separate.
Look for options to open commercial credit accounts:
Probably the most undervalued kind of company credit is trade credit with your merchants and suppliers. While 30- or 60-day payment periods may not be appropriate for a small business loan, they will help your company exhibit the solid credit history that lenders look for before approving your loan application.
Furthermore, if you have a bad month and need someone to help you out, your suppliers are more likely to assist you since they want to continue doing business with you.
It would be best to consider getting a company credit card. Company credit cards are often simpler to qualify for than small business loans, and making on-time payments can help you create a great business credit record.
Make on-time payments and use the credit you require:
Making every monthly payment on time is the most important thing you can do to establish or enhance your credit rating. This is true for both personal and commercial credit. A string of late payments can deplete your credit far faster than months of solid credit habits would.
Creating and maintaining a solid credit history is a marathon, not a sprint. When searching for the finest business loans to match your company’s requirements, a strong profile will present alternatives inaccessible to a firm with a poor profile and propel your loan application to the top of the pile.