Your credit score is your financial reputation. Your credit score should be kept intact to protect your financial reputation. Having a good credit score/history is very important because a poor credit score/history is one of the reasons SMEs are denied loans. A business or business owner with a bad credit is considered a risky borrower, usually due to owing large amounts of money or having a history of unpaid bills and debts. A good credit record, on the other hand, makes it possible to get big loans for your business.
So what do you do if you have a bad credit record, zero credit history or low credit score? Understanding factors that determine your credit score is the first step. Note that this is not about how much money you have or make. Your credit score is a three-digit number, usually between 300 and 850, that’s based on the information in your credit report. The score is determined by your payment history, length of credit history, the amount owed, type of credit, new credit, and other factors.
What is a credit report?
A credit report is a statement that has information about your credit activity and current credit state such as loan paying history and the status of your credit accounts from a number of sources including banks, loan companies, government etc.*
This is valuable information for lenders, who need to understand your credit history as well as how likely you are to repay the money you borrow.
A score on your credit report of 600 or higher is considered good, while a number above 800 is considered excellent. If your score is around this range, your chances of being approved for a business loan are quite high. A score below 500 could be considered bad or poor, and it could restrict your options.
Your credit score determines your creditworthiness, and most times play a crucial role in the interest rate and loan amount some financial institutions offer you.
If your credit history is not where you want it to be, you are not alone. Improving your credit scores takes time, but as previously mentioned, a good credit score increases your eligibility for loans; hence the sooner you address the factors that might be dragging your score down, the faster your credit scores can go up.
How do you work to fix your credit score? Below are a few things you can do to fix your credit score.
- Pay Back Loans Completely and on Time
Payment history is the largest contributor to your credit score, accounting for 35% of your credit score. Taking a loan does not end with the disbursement of the loan; you have to pay back the loan down to the last kobo and leave no loans unpaid. One of the best ways to ensure you are never late is to set up reminders or autopay for recurring bills.
After you think you are done paying, confirm with your lender or account statement that you have paid every dime on the loan.
- Build/Boost Your Credit
Credit History is one of the factors that affect your loan approval. When you have no credit history, it means that you do not have anything on your credit report at all. You have not borrowed money in the past, or recently. This is easy to fix.
If you need to build a credit history you can do this by taking out a small loan, make your payment on time each month, and try to pay the loan off early. The reason you may want to build a credit history is to make it easier to qualify for bigger loans. The goal will be to secure a business loan you have the means to repay. At BizNurture, you do not need to have a credit history. We help you build it. Visit our website at biznurture.com to start now.
- Dispute Any Inaccuracies on Your Credit Reports
Check your credit score regularly. Mistakes and inaccuracies appear on credit reports more often than many people believe.* Some mistakes may be minor, like misspellings of names, addresses, or other personal information While other mistakes, such as incomplete payment history or the addition of credit accounts that do not belong to you, could be much more significant. However, if you are not checking your credit regularly, sometimes inaccurate information can go unnoticed for years. If you notice any mistakes on your credit report you should report them and follow the necessary process to get it fixed.
Reviewing your report can also help you better understand how your decision may affect your credit in the future.
Once you’ve done the hard work to fix a bad credit score or zero credit history, keeping up the momentum is the next step. That means diligently paying all bills on time, maintaining low balances on credit cards and only seeking out new credit when necessary.