It is surprisingly easy to get into debt. Not everyone is great at money management, after all, and there are many opportunities to accidentally miss a repayment on a loan or credit card and see your credit score become worse. A credit score is based on your credit history and how your accounts have been managed. Curiously, this also means that if you have never had a loan, card, or any type of credit you will not have a credit rating!
Let’s say you are looking to set up a business, and you need finance. You’ve got investors in the form of family, perhaps friends, but you need that little bit more. So, you apply for a business loan to help. Because of your poor personal credit score, you get rejected every time. Why does this happen, and what can you do about it? Let’s answer those questions for you.
Why Does My Personal Credit Score Affect My Business Loan Application?
Before you read on you may want to watch this YouTube video which gives plenty of useful advice about how to restore your credit rating. So, let’s answer the first question: why does your personal score affect your business loans? Put simply, your business is in the fledgling stage. Every loan will be advanced by the lender with certain conditions. One of these is that if you default on the loan, they can take the business as collateral.
However, in a small and young business, they may also insert a clause that allows them to take money from your personal savings and income. If you have a poor credit rating, the chances of them being able to get back what they lent if things go wrong are less. Some lenders may be willing, but they will ask for far higher interest rates than you would normally pay. This is why we recommend you do all you can to boost your credit score before you begin applying for business loans.
What Can I Do to Boost My Credit Score?
There are ways to repair a poor credit score, so let’s have a look at the best methods:
- Ensure you pay all loan payments, credit card payments, and other credit agreements on or before the given date each month.
- Find a reputable credit repair company that will work with you to get to the root of your problem and help you work towards a repaired credit score. This costs money but can be worth the investment.
- If you are offered a credit card for poor credit, take it, use it regularly, but ensure you pay the entire outstanding amount each month. This is also a good move if you have not had credit before.
The above are the best ways to restore bad credit but be aware it may take a long time if your rating is particularly poor. Talk to the experts now and put things in motion and you’ll be on your way to that business loan.