Credit is a funny thing. Or maybe not so much funny as titanically frustrating. If you really need credit, it’s hard to get. If you don’t, lenders trip over each other to give it to you. But to get to the place where you don’t need credit, you need to build your business. And to build your business, you need…credit.
If you don’t have credit, how do you get it – and get on with building your business? Here are six tips to start you on the right path.
- Start small. Big loans can be a big risk for lenders. Cut their risk and raise your chances with a modest loan request for a relatively short term. If a small loan isn’t in the cards, set up a commercial account with a supplier. If that’s still out of reach, consider a secured business credit card. Use it and pay it on time, every time, for six months, then try working your way up the credit ladder again
- Request credit limit increases. If you have commercial credit and/or business credit cards that are in good standing, see if you can get your limits increased. But think hard before you use any of those increases. Credit utilization – the ratio of available to used credit – is an important factor in your credit rating. Aim for 30% credit utilization or less
- Don’t ask for too much, too fast. Every time you apply for credit, you’ll get an inquiry on your credit report. Rack up more than two inquiries per year and your credit begins to suffer. The same thing applies to credit line increases, discussed above
- Use credit alternatives when possible. To keep credit lines open (and keep credit utilization low) consider financing equipment and software used in your business. Not only does this help you build your credit, it can give you a great deal more flexibility with regard to your payment structure, as well as help you better manage that other vital business resource – cash
- Check your business credit reports. Business credit reports are collected by three bureaus: Equifax, Experian and Dun & Bradstreet. Check all three regularly to ensure that information is accurate and up to date (there’s no charge to do this once every 12 months). If you do find any discrepancies, contact the bureau to file a dispute and get your record corrected
- Don’t close credit lines unless absolutely necessary. A credit rating is a record of paying on time over time – and the longer you’ve been paying on time, the better. To keep all of your accounts active, use them once in a while, if only for minor purchases. Just be sure to watch your credit utilization and pay promptly
Good credit is a necessity in business. Not only does it give you the freedom to act when there’s an opportunity to grow your business, it saves you money with lower rates on borrowed funds. It can even be a factor in a vendor’s (or a customer’s) decision to do business with you. With a small investment of time and attention, you’ll help to ensure that you have the credit you need to build the business you want.