If you plan on starting a business, having a strong credit score is often a prerequisite. A high credit score shows your trustworthiness for a loan, demonstrating to banks that you are capable of responsibly repaying a loan. It will make accessing various forms of financing easier and more realistic.
However, for a variety of reasons, your credit score may be subpar. Credit scores can become poor for a variety of reasons, including a past bankruptcy, high student loans, and other factors. Many of these causes do not mean you are unreliable as a person — but it can sometimes appear that way to banks.
In short, if you are looking to start a new business, having better credit can be extremely helpful. Read on for some realistic ways to improve your credit and better obtain financing for a new enterprise.
Regularly Pay Debts
The simplest way to build credit is to simply be consistent and reliable in paying debts. Naturally, this is easier said than done in some cases, particularly if you have substantial debts to start with. But no matter your situation, working your way out of debt is how to start.
Aim to reliably pay the minimum balance on any loan you owe — and when possible, try to pay over the minimum, working to slowly pay off loans. There are different approaches to doing this — some advisors prioritize paying high-interest loans first, while others advocate paying those with the lowest principal. Whatever you choose, steady payment will help rebuild credit.
Get a Credit Card
In some cases, you may actually have a limiting credit score because you lack loans. In such cases, opening up a credit card can help build credit. By using a new credit card regularly — but avoiding maxing it out, and repaying it consistently every month — you can also help to boost your credit score.
Seek Alternative Financing Options
In some cases, obtaining a conventional loan may simply be hard with prohibitively low credit. In such cases, seeking alternative lending options may be useful.
Looking at private loans, for instance, can be an effective avenue — as can crowdfunding a business. These options will allow you to secure financing without needing to go through conventional loan application channels.
In short, a low credit score can feel like an insurmountable obstacle when trying to start a new business. But there are always a variety of financing options, as well as ways to improve your score.