Seeking New Business Credit – Fix Personal Credit FirstPosted by Celeste
When developing a business plan for your loan application, remember that lenders are looking for many different things. They want to know if the business has been clearly thought through, what the profit margins will be, how experienced the management team is, and how the principals have used credit in the past.
Rather than simply wonder if your financial past is going to hurt your chances of getting a loan for your small business, it is important to be proactive and find out what you look like to a lender. In the world of credit, each of your accounts is rated on a scale of 1 to 9 (one is very good and means you pay on time; nine is very bad and means that you defaulted). Based on the ratings of your accounts, you will be awarded a score from 300 to 900 (300 is very bad; 900 is excellent).
In Canada there are two main credit reporting agencies that lenders use in order to check you out. They are Equifax and TransUnion. You can order your credit reports from them for free by mail or for a fee online. For an additional fee, you can also find out what your credit score is with them.
Once you have your credit reports in hand, you can check them for accuracy and dispute any errors with the reporting agencies. But what if there are no errors, what if you just have a really bad credit history? Is there anything that you can do?
Make sure that you are paying your bills by the due date. Unfortunately, paying your phone bill on time does not count as a positive on your credit score, but some companies do take the time to report late payment or non-payment to the reporting agencies, so paying bills late can have a negative impact on your credit.
Pay off your debts.
If you already owe a lot of money, it is likely going to be hard for you to pay back even more money. Reducing or eliminating your personal debt will increase your credit score and your chances of getting that business loan.
Establish positive credit.
You can do this by using and paying at least the minimum monthly payment on your credit cards each month. You will also need to make sure that you do not go over your credit limit. If you do not have a credit card and cannot get one because of bad credit, you can still apply for a secured credit card (you make a security deposit greater than or equal to the limit on the card) and do the same thing.
Have you ever taken steps to improve your credit in preparation for starting a business? How did you go about it?