The Small Business Owner’s Guide to Credit Restoration
Imagine you start a new business, and you’re very excited to promote it. You put in your first bulk order for inventory, but you realize that you can’t afford it.
However, you can’t get a loan to cover the cost. Luckily, credit restoration can get you back on track toward financial health.
But why is good credit important? Why does your credit matter when it comes to starting a business?
Importance of Good Credit
Having a good credit score means you can make bigger financial decisions. It shows lenders that you know how to manage your money and that you can pay for what you buy.
Without a good credit score, it can be impossible to get loans for a big purchase, like a car or a house. And if you have a small business, you may need loans to manage inventory or pay your employees.
If you don’t have good credit, you should consider credit restoration. Then, you can take advantage of the benefits of good credit.
Get Business Loans
Almost every small business will need financial help at some point. While you can get business grants, a lot of financial help will come in the form of a loan.
If you can get a business loan, you will be able to buy more stock or move from your garage to a storefront.
You don’t have to take out a massive business loan as a small business owner. However, having good credit can make it easier for you to get a small loan.
Buy Commercial Property
If you run a brick and mortar business, you almost certainly need commercial property. Of course, you can lease a space in a shopping center or mall.
However, there may come a time when you want to own the property where you run your business. When that happens, you may need a mortgage on your property.
Just like any other business loan, buying property requires good credit.
How to Tell If You Have Bad Credit
Before you can get business loans, you need to focus on credit restoration. But before you can do that, you need to know what your credit score is.
You might already have a good credit score, but if not improving it will help you get the financing you need for your business.
Contact one of the three credit bureaus, like Experian, to get your credit report. Your credit report can tell you what’s working well and where you can improve.
Factors that affect your credit include:
- Length of credit history
- Credit limit
- Utilization of that limit
If you know what areas need work, you can take the proper credit restoration steps. Then, you will have an easier time getting that loan you need to grow your business.
Credit Restoration Steps
The best credit restoration steps will depend on your credit report. Restoring your credit will not only help your business, but it will also help you get personal loans if you ever need them.
But what is credit restoration? It’s the process of building your credit so that you can improve your score. Depending on your score and report, it could take some time before you see a big change.
However, the work you do to improve your credit score is usually worth it. Consider these tips for how to fix my credit as a business owner.
Pay Bills On Time
One of the easiest and most important things you can do for credit restoration is to pay your bills on time. Of course, this can be easier said than done if you have a lot of bills or not a lot of money.
If you miss one of your bills, that reflects badly on your credit report because it shows lenders that you aren’t always reliable.
Banks and lenders won’t want to give money to someone unless they know the person will pay the loan back. So do your best to pay your bills before they’re due.
Set reminders in your calendar or on your phone. If possible, pay the bill as soon as you get it so that you don’t forget.
Get a Credit Card
If you don’t have a credit card, you should get one. Having at least one credit card is a good way to start building or repairing your credit.
You can use it for small purchases, and you can pay off the balance each month. But like with any other bill, make sure you pay at least the minimum payment.
Ideally, you would pay off the entire balance to avoid interest. Paying the full balance can also show lenders that you can make larger payments.
You don’t have to have a ton of credit cards, and you should avoid maxing them out. However, using a credit card and paying it off is one of the easiest credit restoration methods.
Focus On Credit Utilization
While having credit is important, the amount of credit is also crucial. Your credit utilization is part of your credit score, and it can make a huge difference.
Even if you pay off the balance in full each month, if you come close to your credit limit, that can look bad. If your credit limit is $1000 and you spend $900, that means you’re using 90 percent of your credit.
Ideally, you would only use around 30 percent, or $300. To bring your credit utilization down, you can either cut your spending, or you can increase your credit limit.
You can get another credit card or take out another loan. Or you can ask your current credit card company to raise the limit on a card you already have.
Having good credit means you have access to more financial services, like loans. You can get a business loan to help fund your small business, or you can get a mortgage and expand to your office.
If you don’t have good credit, credit restoration is how you can get there. It may take time, but you can do it by paying your bills and keeping your spending in check.
Want to learn more about running a small business? Check out our other blog posts!