When a bank turns you down for a small business loan, due to your current credit score, there are other options. Typically, when you apply for a loan, the bank will look at the value of your business, your net worth, your current credit score, outstanding debts, and other factors. They use these factors to determine the risk of loaning you the money. A bad credit score is an indicator that you may have trouble paying off the loan.
If bad credit has stood the way of you getting a small business loan from a bank, use the following methods for repairing your credit. Start repairing your credit, so that you can get your business off the ground or keep it operating.
1 – Start Paying Off Debt
The biggest obstacle to good credit is debt. When you have a substantial amount of debt, your credit score declines. To begin repairing your credit, start by paying off some of your past debt. Take a look at all of your outstanding bills. This can include credit cards and other bills. Pay off the smallest debt first. You will then work your way up the chain. This allows you to limit the number of companies trying to collect money.
While you are paying off these debts, continue meeting the minimum monthly payments on your other debts, but pay a little extra each time. This could cut down on various processing charges and interest.
2 – Take Care of Late Fees
Even if you are caught up with all your debts, you may still have outstanding late fees. Resolve any late fees with any of your creditors. You can have a zero balance on a credit card, but if you have a pile of late fees, this can still reflect negatively on your credit score.
3 – Pay Bills On Time
Paying your bills on time is another way to repair your credit. Most companies report your late payments to the credit bureau. Prevent this from happening by always paying your bills on time. If you have trouble remembering to pay your bills occasionally, then consider setting up automatic payments. With this option, money will automatically get deducted from your bank account, each time a bill is due.
4 – Continue Using Credit Cards
As you start paying down your credit cards and past debt, continue using one of your credit cards. Typically, this should be the credit card with either the largest available balance or the best interest rate. If you have multiple credit cards, weigh the difference between balance and interest rate and choose a card to actively use.
With the credit card chosen, continue using the card whenever you make small purchases, such as for business supplies. The next business day, after making a purchase, pay off the amount that you used. If you continue paying off the card as soon as it is used, you will avoid any interest and help rebuild your credit.
Use these suggestions to start repairing your credit. Before long, you will be able to head to the bank and obtain your needed small business loan. By showing that you can pay off your debts and make payments on time, a bank will see you as less of a risk and be more likely to provide you with financing. Do not let bad credit stop you from getting a loan – use these tips to repair your credit.