A lot of preparation goes into launching a start-up, from determining what kind of industry you’re interested in to developing your business model. But of equal importance is a step that many aspiring entrepreneurs overlook: getting your credit in shape in order to attain small business financing.
Credit has a large impact not only on whether you’ll be able to acquire business financing, but also on the repayment terms. Naturally, those with the best credit get the lowest interest rates and most preferable options. Here are five tips you should act on now to start prepping your credit for business ownership:
1. Don’t procrastinate paying bills.
It may not seem like a big deal, but making just a few late payments, especially on credit cards, can have a big impact on your credit score. It could make potential lenders believe you’re a risky investment. If you find it hard to pay bills on time, consider registering for auto-payments or setting up monthly calendar reminders so you’ll always be notified of due dates.
It may not seem like a big deal, but making just a few late payments, especially on credit cards, can have a big impact on your credit score. It could make potential lenders believe you’re a risky investment. If you find it hard to pay bills on time, consider registering for auto-payments or setting up monthly calendar reminders so you’ll always be notified of due dates.
2. Don’t close unused credit cards.
It sounds counterintuitive to keep credit cards that are paid off active, but it’s a good idea if you want your credit score to inch up. By keeping cards with zero balances open, it benefits your credit utilization score (the amount of credit you’ve incurred versus total credit limits) — a sign that you know how to limit spending.
3. Use only 40 percent of your credit limit.
This is another tip that will help your credit utilization score. When you use credit cards, don’t exceed more than 40 percent of the credit limit per card. Instead, spread your debt out among several cards.
4. Keep separate accounts from your spouse.
Don’t jump the gun when it comes to merging accounts when you marry. By keeping your financial accounts separated, you’ll have your choice of accounts to use when applying for business financing. Plus, in the case of an economic setback, you can salvage one account to be used for credit purposes.
5. Leave loan applications to the experts.
Before you start filling out multiple credit applications online, keep in mind that each submission means another inquiry to your credit report. Since more than two inquiries can decrease your credit score, you’d be better off employing a reputable company who already knows which lenders to pursue.
By following these five steps, you’ll be well on your way to finding lenders who will give you the best financing rates, and that means you’ll save more money to invest in your new business.
