Your credit score can be easily damaged, and the damage tends to stick around for a while. Just one missed payment, or going over on your credit card limit by a couple of dollars without realizing it, can cause considerable damage to your credit score that’ll still be visible to potential lenders years down the line. Many people who are now great with managing their money find that their credit score is tainted due to mistakes that they made whilst they were young; for example, if you took out a credit card in college that you struggled to repay on your student budget, then this could have a huge negative effect on you in later life. You may have problems if you try to buy a new house, or start your own company and want to borrow a business loan from the bank. Also, if you want to rent office space, you will need a very good credit score as well.
For business owners, having a glowing credit score is often essential – not only does this make it easier to get business credit cards and secure borrowed funding to help your business get off the ground, it also minimizes your chances of running into financial problems in your personal life that could quickly influence your business.
So, whether your credit score has a little bit of past damage or has been completely screwed up, repairing it should be your priority. We’ve put together some top tips to help business owners repair their credit scores to help their company.
- Pay off Personal Debt
Starting your own business is a huge risk to your personal finances; when you become your own boss, you’re never guaranteed that a wage will be paid to you this month, or the next. As your business grows and develops to become more successful and stable, this will hopefully subside and you’ll have a better idea of how much money you’ll be earning each month. However, during the initial stages of your business, it’s important to try and make sure that you get rid of as many financial commitments as possible, since this will be less stressful for you if you run into cash flow problems initially. Bear in mind that investing money back into your business should always be your priority for better financial results in the long run; because of this, many business owners need to be happy with paying themselves a bare minimum wage for the first few months or even years of trading.
If you’re living on a tight budget whilst you work on getting your business off the ground, then the last thing you want is personal debts hanging over you, especially if there’s a real risk of them going unpaid and affecting your credit score further. So, pay off as many of your debts as you can in full to draw a line under them – this will not only reduce your outgoings, but it can also have a positive effect on your credit score when debts are no longer outstanding.
- Don’t Borrow More
It goes without saying that you don’t want to borrow any more money when you first start your business, especially if your current credit score needs repair. Even if you manage to pay off any outstanding debts and improve your credit score significantly, it’s important not to give in to the temptation of taking out credit cards and/or loans that you might be offered personally.
Although living on a tight budget during the initial period of setting up your business can be immensely difficult, it’s a good idea to try and find other ways of raising funds if needed. For example, you could sell assets to raise personal funds, or even sell items that you own around your home on sites such as eBay – this can bring in more money than you may realize! If you must borrow money, then it’s always better to do this privately, for example asking family or friends, rather than going to a bank or other lender.
The more debt that you have in your personal life, the worse your credit score will be when it comes to applying for business funding. As a result, you’re risking your chances of getting the business loan that you need, and putting your personal finances on the line. If you take out more credit and become unable to repay it, then you could end up with a court judgement against you. See https://creditrepaircompanies.com/judgments/ for more information.
- Take Out a Consolidation Loan
If your credit score is poor due to having a lot of debt, then it’s likely that you’re going to be unable to pay it all off in one go – chances are that if you could do that, then you already would have! But, whilst looking at any smaller debts that you’re able to repay in full is still a good idea, you might be worried about the implications of being unable to pay off any larger debts that you may have, such as old car finance or a credit card with a large limit.
If your credit score isn’t so bad that you’re completely unable to borrow any further funding, then you might want to consider looking into getting another loan which you’ll use to consolidate your current debts. When you take out the loan, you can then distribute it between the credit that needs to be repaid, which will allow you to pay them all off in full and leave you with just one, rather than multiple outstanding lines of credit.
This works to improve your credit score in many ways – firstly, your old debts will be paid off, which always goes in your favor. Secondly, the fact that you only have one outstanding loan is much better for your credit score than having multiple, as the number of open accounts that you have is one of the main factors used to determine your score. Don’t forget that it’s also likely to be cheaper for you, since you will no longer be paying interest on multiple loans and cards.
Did these tips help? Let us know in the comments.
