How to fix your credit score yourself to boost odds of getting a small business loan
If you’re in the market for a small business loan, one of the best ways to increase your chances of securing one is by improving your credit score. Believe it or not, there are concrete, no-fuss ways you can do this on your own — at absolutely no cost.
Ensuring you have the best possible credit score can help you in many ways, as an entrepreneur and a consumer. For one, it can unlock lower interest rates for financing of businesses, automobiles and homes. Better rates mean big savings over time.
For example, if you got a $250,000 10-year business loan at a 9.5 percent interest rate, you’d be paying more than $32,000 in interest over the life of the loan compared to a loan at a 7.5 percent interest rate. With the latter loan, you’d be saving $267 a month, said Eddie Landeros, a credit expert at leading small business lender CDC Small Business Finance.
“Your credit score does make a difference long-term,” Landeros added.
If you need more evidence, check out this stat. Having sub-par personal credit history is the No. 1 reason business owners get declined for small business financing.
Are you interested in implementing some high-impact tactics to boost your credit score? Landeros, a senior business advisor at CDC, sat down with us to offer his best advice.
Know what credit score you need for financing
A credit score is a figure that’s calculated based on items in your credit history. It’s used by lenders to estimate the likelihood you’ll make payments on time or at all. A typical score ranges from 300 to 850. And the higher the score, the less risky the potential borrower in the eyes of a lender. So, you’re aiming high here. Small business lenders may have a minimum credit score for obtaining financing. At CDC Small Business Finance, a non-profit lender, there is more flexibility and the minimum can be as low as 620. It’s a bit higher at traditional banks, about 680.
Thoroughly review your credit report
What you don’t know can hurt you when it comes to your personal finances. Eliminate the guesswork by obtaining a free copy of your credit history through trusted source Annual Credit Report.com with these instructions:
• Follow the site’s simple steps.
• Carefully review the credit report.
• Confirm everything listed is correct and belongs to you.
Dispute issues on your credit report
Eddie Landeros, senior business advisor at CDC Small Business Finance
One of Landeros’ borrower clients successfully disputed out-of-place collection items on his credit report. After a few months, the client’s credit score increased by 69 points, which helped secure the needed financing and a better interest rate. Medical-related errors are commonly found because there’s often miscommunication between hospitals and insurance companies, so pay special attention to those items, Landeros said.
How do you dispute an entry on your credit report? Simply fill out an online form on any of the credit bureaus’ websites to start the process. (Here are those websites for easy reference: Experian, Transunion and Equifax.)
You’ve probably seen companies offering credit-repair services, at a fee. No need to take the bait, Landeros said. Any meaningful changes you can make to your credit report can be done on your own.
Pinpoint your credit score
Generally, credit reports do not automatically contain your credit score. You may have to pay a small fee to those credit bureaus to unearth this important data point. Alternatively, you can visit Credit Karma to get a free copy of your credit score.
Watch your debt load
Another relatively easy way to boost your credit score is by reducing your debt-utilization ratio. This is calculated by dividing your credit card balance by your credit limit. The goal is to get it down to 30 percent or less.
So, say you have $10,000 in available credit and you’ve used up $9,000, that’s a 90 percent utilization ratio. That’s far too high. If you have the cash available, pay that down to about $3,000. In one case, Landeros advised a client to reduce the balances on each of her department store credit cards to get her ratios down to 30 percent or lower, which helped her lock in a business loan.
Patience is key
The world of credit tends to move slow so don’t expect results overnight. Credit disputes can take 30 days to several months to resolve and show up in your history. This is why it’s important to be proactive. The earlier you detect problems, the faster you can resolve them.
A typical customer disputing their history can see a 20- to 30-point increase. That’s often enough to secure you a lower interest rate on a loan.
Our team of experienced business advisors work with our potential and current borrowers with business strategy, credit repair and much more. If you are ready for a small business loan reach us at getadvice@cdcloans.com.
