There are millions of small businesses in the United States. If you’re thinking about starting one, you’re not alone. Over 627,000 new businesses open each year. Some are very small, with no employees, while others have staff from the beginning.
Almost every new business owner has to operate leanly and efficiently, but that’s not usually enough. Most companies also need outside funding. It can be a significant challenge to raise that money when you have poor credit.
The good news is that you can still start your business. You’ll just need some extra creativity to grow while you build your credit rating.
Here’s what you need to know!
Know What Impacts Credit
The first step to repairing your credit is knowing what factors impact your score. There are five primary elements that credit bureaus consider as they create your score.
The most important is your credit payment history. This piece alone accounts for 35% of your FICO score. It’s essential to pay on time, and if late payments are reported, they will decrease your rating. Lenders want to know that you’ll pay them back on time if they approve you for a loan.
Next, you’ll want to look at credit utilization. Utilization is the percentage of your available credit that you’re currently using. If you have overall credit availability of $10,000, but you’re using $7,000, you have a utilization rate of 70%. Most lenders want to see 30% or less. Credit utilization makes up 30% of your score.
The final three elements have less weight but are still vital. How long you’ve had credit accounts comprises 15% of your score. The mix of credit — whether you only have credit cards or have other types of loans as well — makes up 10%. Finally, how many new accounts you’ve applied for recently accounts for 10%.
There are a lot of reasons you might be struggling with your credit score. Now that you know what details impact your score, you can work on improving your rating.
Simple Ways to Improve Your Credit
There are three simple steps you can take to improve your credit score. First, make sure you order a credit report from one of the three credit bureaus. Each bureau offers one free report every three years. When you order from one at a time, you can get a report every year.
Review your credit report and look for errors. Fixing a mistake is the easiest and fastest way to improve your credit. Are there old accounts that should be resolved? Is any of the information inaccurate? If so, update it right away.
Once you have your report corrected, focus on your payment strategy. It’s essential to pay on time and work on reducing your credit utilization. That may mean paying more than the minimum, but only if it won’t cause financial problems. You don’t want to end up in more trouble than before.
Finally, as you pay off credit debt, keep your accounts open. It might feel good to close the door on an account that has been challenging for you, but keeping it open helps boost your credit score. If it’s an older account, it’s contributing to your credit length. No matter how long you’ve had it, though, having available credit you aren’t using improves your utilization.
These three steps are the easiest way to get back on track. Over time, your credit score will improve and you’ll be able to get funding for your business much more easily!
Be Creative With Your Business Ideas
As you build your credit, you’ll need patience and creativity to keep your business moving forward. The good news is that not everything has to cost money, and when it does, there are ways to reduce expenses. There are a lot of resources available to entrepreneurs.
Connect with the Small Business Administration to get ideas for how to run your business more effectively. They also offer loans and grants that may be easier to get than traditional bank financing.
Consider starting a small business that’s easier to run with less capital. For example, you might want to start as a contractor, consultant, or freelancer instead of manufacturing products for customers.
Online publications have a lot of useful, free information as well. Inc., Forbes, and Business Insider all publish tips for entrepreneurs that can help you succeed.
You can be creative with your marketing as well. There are many low-cost ways to use digital marketing to draw attention to your business, build your brand, and bring traffic to your website.
The more efficient you are in running your company, the easier it will be to grow while your credit score is improving.
You Can Succeed With Poor Credit
There are a lot of reasons why you might have poor credit. They don’t mean you can’t be successful as an entrepreneur. You’ll need to be creative and patient as you grow.
Taking steps to improve your credit score will make a big difference as well. As you make on-time payments, reduce your credit utilization, and keep your paid-off credit accounts open, you’ll be able to watch your rating climb.
Succeeding in business is a great feeling. There’s no reason not to start today!