How to Boost Your Credit for a Loan
Credit can make or break your ability to get a business loan. Take a look at what credit is, why you need it, and how to get it.
If you need cash, what do you do? Get a loan! But it’s not that easy – you need to pass a few hurdles to get approved. You’ll need to show that you have the ability to pay it back. You’ll also need to have a good enough credit score. If your score is currently too low to quality for a traditional loan, you’ll have to take active steps to boost it. It won’t happen overnight, but you can definitely do it. These tips can help – stick with them and you’ll soon be on your way to a great score!
Personal Vs. Business Credit
Your personal credit score and your business credit score are different, but the same kinds of behaviors will improve both. Paying your business’s bills on time is just as important for your business credit score as paying your personal bills is for your personal score. Note that you are not entitled to a free business credit report; you’ll have to pay.
1. Watch Those Credit Card Balances
Pay off your credit card balances (and other revolving debt) and keep them paid off. If that’s too optimistic for your current financial situation, then pay down your credit card balances with the goal of reducing your overall outstanding total.
It may take some time, but every little bit helps you improve your score. Some credit card companies will accept multiple payments each month. Ask if you can make smaller payments a couple times during the month to boost your score at a faster pace.
2. Apply for a Credit Card
It may be surprising to hear that you should apply for a credit card to boost your credit but in some cases, it may be true. You may have been turned down for a loan because the lenders didn’t see a long enough credit history to make a favorable decision.
If you don’t currently have a credit card, then applying for one can help show lenders that you can use credit responsibly. The key here is not to apply for a credit card, then make a slew of purchases you can’t afford. Rather, apply for a credit card with the goal of making small purchases that you can pay off each month.
On-time monthly credit card payments shows lenders that you can use credit responsibly, and that you are not a credit risk. You should strive to keep the card’s balance at 10% of the total credit limit; higher than that is a red flag to lenders.
If you’re not able to qualify for a credit card because your credit history has some dings, then you’re not out of luck. Secured credit cards can help you build credit and boost your credit score. A secured credit card allows you to make a deposit to the card, then draw from those funds. When choosing your secured card, pick one that reports to one three major credit reporting agencies. You may also find it easier to get approved for a store credit card than for one from a traditional credit card company.
The credit card issue is a fine line – you have to make purchases and payments to build credit, but you also need to make sure you’re not digging yourself into debt or carrying a large balance.
3. Use One Credit Card Exclusively
The more credit cards you can get to zero, the better. If you have seven credit cards and charge a small amount to each one, that doesn’t bode well for your credit score. It’s far better to have one go-to card that you use for all purchases and pay off smaller balances on the other cards. Having one larger balance and several “zero” cards is a better move to boost your credit score than having multiple, smaller balances.
Your total outstanding credit can also affect your score, so it may be worthwhile to close those other cards. Note that closing a card may have a small negative effect on your credit in the short term, but will improve your score overall in the long term.
4. Pay Your Bills On Time, Every Time
A good credit score is a result of an aggregate of your payment habits – that includes monthly bills. Paying your bills each month, in full, can boost your credit score. Make it a habit to get on top of your monthly expense and your financial budget, so that you can make consistent timely payments. A history of timely payments will eventually add up to a stellar credit score.
5. Monitor Your Credit Score
Any time you’re turned down for credit, you have a right to see the credit score the lender used to determine why you were denied. Monitoring your credit score ensures that you address any errors and stay on top of upward trends.
You are entitled to a free full credit report once every twelve months, from each of the three major credit agencies – Equifax, Experian and TransUnion. Request your reports and make sure they are complete, accurate, and up-to-date.
6. Be Patient – Stay the Course
There’s no quick fix to boost a lackluster credit score. Remember that improving your credit and your loan-worthiness won’t happen overnight. That said, just six months of timely payments can positively impact your score, so know that each month, you’re getting closer to your goal. If you have any huge, outstanding balances, then paying down all or a large portion of those balances can boost your score even quicker.
Know that good credit is a process, as well as the continued evolution of good habits. If you want to keep a solid credit score over the long term, then learning the habits to manage good credit will set you on the right path. Strive to make all your payments on time, reduce your overall debt, and keep tabs on your credit through credit reporting bureaus. Before you know it, you’ll be loan-ready.
Boost That Score
Building credit is an evolving, long-term process. The sooner you take steps to improve and monitor your score, the sooner you will be loan-ready in the eyes of lenders. Shore up your credit rating with our tips, and you’ll be on your way to securing loans in the future.