Credit scores play a crucial role when it comes to funding your business by availing loan from any financial institution. Regardless of whether it is a start-up or an established business, you require cash for a number of business operations like buying equipment, expanding your existing business set up, investment, and there are several other requirements when it comes to generating and arranging for cash for your business.
You will undoubtedly be able to lay your hands on it provided you have been financially responsible in the past. And this gets recorded in your credit report. Your credit score determines whether or not you are eligible to avail financial aid in form of loan.
In this write-up, let us find out how you can improve your credit score so that you stand a better chance in availing financial aid.
Tips for improving credit score
Credit scores usually range between 300 and 850, the former being considered low and the latter is very good or exceptional. So, if your score is above 650 or 700, you will face no difficulty in taking out a loan. Alternatively, below 500 is not a very good score to boast about and not all lenders may be willing to work with you. So, what can you do about it under such cases? Check out the following points-
1. Start using Business Credit Card
If your company is not already reeling under credit card debt, this is perhaps the best option available. Even if you have adequate cash at your disposal for making purchases or any other investment, make sure you use this credit card. By doing so, a track record gets established that will track your financial habits that include your repayment behavior and so on.
2. Auto payments
You can set up your payment mode as “auto payment”. Being an entrepreneur, you are expected to be on your toes round the clock. So, it is quite likely that you might miss payments once in a while, which will tarnish your financial image as it gets recorded in your credit report, thereby adversely impacting your credit score. If you happen to avail payday loans from a direct lender for purposes other than your business, you have to find out whether this mode of auto payment is allowed or not. You can apply now for financial aid other than payday loans, if you find that you are permitted the auto payment facility because it saves not just time and effort, you don’t default on making payments.
3. Reduce utilization rate to improve credibility
Take account of your inventory, expenses you incur on your staff, daily operations, betterment, managing debt, buying equipment, and machinery, and so on. If you can keep your expenses low and simultaneously, manage your finances well, your creditworthiness increases by several times. In other words, the utilization rate has to be minimized in order to have a better credit score.
4. Avoid shifting debts on credit cards
It is oftentimes tempting to avail many credit cards and shift debts or transfer them. You will be tempted by the offers that credit card issuers offer as introductory services but in the long run, it might harm your creditworthiness unless you handle these plastic cards judiciously. Instead of transferring debts too often, you can just pay off the debt and become debt free. Although this is easier said than done, but it can go a long way to improve your credit score which will also benefit your business.
Even if you have to strive hard to improve your credit score, remember it will yield benefits in the long run not just for your business but also for you.