Credit history continues to be the largest obstacle in preventing small business owners from receiving a business loan. Considering that undercapitalization contributes to approximately 80% of new business failures, overcoming this obstacle is paramount. In order to have access to capital there are a few simple steps that you can take to improve your credit history as well as your chances of being approved for business funding.
Improving a Bad Credit Score
The most important step in the credit cleaning process is to know exactly what your credit history looks like. Getting your personal credit report is easy and more importantly, free as long as you have not used the option for a free report at the Annual Credit Report website. If by chance you don't have the annual option available, if you have recently been denied credit or employment as a result of your credit report you are entitled to a free copy from the credit reporting agency. Either way, you want to pull a report from all 3 major agencies, Experian, Equifax, and Transunion to be able to challenge any of the derogatory items.
Examine your reports carefully and it is advised to manage the challenging of any negative history on your own. Once you have printed your reports you will be able to see what you can easily challenge. Reports are often latent with old or inaccurate information that can easily be removed. The credit reporting agencies have a clear and easy process online or via mail to remove any inaccurate data. Those items that are derogatory and legitimately posted can often be removed by paying a small portion of the actual debt. Communicate with the listed holder of the debt and make removal of the derogatory information part of your payment arrangements. Make sure you receive the details of the agreement before making any payments.
If you do not feel you have the ability to negotiate with creditors there are law firms that handle these types of negotiations. Professional debt negotiation lawyers are experienced in the field and have a wide variety of resources to facilitate the negotiation process. They will also get you the necessary documents to have the derogatory items removed upon settlement of the debt.
Don't be fooled into using credit repair companies as many of them suggest an expensive and miracle cure which they are likely unable to deliver. If you choose the do-it-yourself route chances are there are one or more mistakes on your credit report, much of the information is outdated and eligible for removal due to the 7 year legal limit (bankruptcies 10 years) for listing negative credit details, or many debtors for the accurate delinquent information are likely to negotiate for a price. By being proactive with your credit cleaning actions you are likely to improve your personal credit score significantly at no cost.
Building Your Credit
There are two very popular ways to improve your credit history. First, make all of your payments on time for any existing debt that is listed with the credit reporting agencies. Adding time to paid-as-agreed accounts can improve your score significantly. Second, and this option is especially important for individuals who do not have any existing accounts, is to acquire secured credit cards. By depositing a small amount of money with the credit card issuer you can establish a credit card account with little or no credit. This type of account appears on your credit profile and the more you use it and pay your bills as agreed the more likely your available credit will grow and after a short period of time. You also get your deposit back after a set amount of time with most issuers. Utilizing credit cards for both business and personal expenses and making payments on time can help establish larger available credit lines in your account profile and ultimate increase your credit score further.
Building your credit is a great way to improve your chances of securing a business loan. Being proactive in the credit cleaning process will help ensure positive results. Even if you only improve your score slightly, there are bad credit business loans available for business owners that do not meet traditional financing requirements. The more capital that is available for your business the more likely you will succeed in the long run.
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