Are you planning to apply for a loan for your business but worried that your credit score health won’t allow it? For startups and small business, your personal credit score impacts your ability to get a loan for your company. If you think you don’t have a chance of having your business loan approved, you might be wrong. There are ways to improve your credit score.
In this article, you’ll learn how to get fast and easy loan approval for your business and improve your credit score. That way, you won’t have to worry every time you apply for a loan. Follow these strategies to boost your credit score.
Why Is Credit Score Very Important in Loan Application?
A credit score may just be a number, but it is your ticket to getting approval for your loan or credit card application.
It is a reference for lenders to decide whether to grant your application or not. It’s their way of knowing if you are a responsible payer based on how you deal with previous bills, loans, and other debts. Hence, having a higher credit score is an important factor you have to achieve and maintain in your financial life.
Aside from being qualified in all types of loans and credit cards, having an excellent credit score can also help you save money because it can result in getting great offers with favorable terms. You can borrow a specific amount of money without having to pay high-interest rates.
However, not all can afford to have a high credit score, and that’s fine. Inevitably, some factors will affect your credit score. Fortunately, you can still improve your credit score, but it will take some time.
If you are planning to apply for bigger loans, start doing fixes to improve your current score. These fixes will improve your chances of qualifying for bigger loans with more favorable terms.
Efficient Ways to Improve Your Credit Score
Here are ways you can easily improve your credit score:
Know How Your Credit Scores Are Calculated
You must know how your credit scores are calculated so that you can identify which factors you need to improve. You can’t solve a problem if you don’t know what causes the problem.
Financial companies will generate three credit reports, using a mathematical algorithm to calculate your credit scores. These scoring models will check your payment history on credit cards and loans. They will also check how much you borrow using your credit card. The tenure of your bank accounts and how often you apply for credit cards will be considered as well.
It will also help if you request at least one of your credit reports from any of these agencies. Review the data carefully, and if you find any errors, make sure to dispute it. There might be some errors or other transactions that weren’t corrected in your credit history, so make sure to always be a step ahead and ask them to check again.
Create a Payment Reminder
Paying on time is the primary solution to increasing your credit score. Make sure that you set a payment reminder on your phone or take note of the billing due dates.
It will also help if you request the same due date in all of your bills, as it can help you not miss any payment. Signing up for an automatic payment system can also save you from late payments. It’s a smart move, especially if you really care about improving your credit score.
Paying in Advance
We usually pay our bill once in a billing cycle. However, paying your bills in advance can help increase your credit score. If you can afford to make two payments in a month, do it so you can lower your credit utilization. A credit utilization ratio is also a significant number in calculating your credit score.
Credit score companies will calculate it by adding all your balances from your credit card at any given time and divide the amount by your total credit limit. Utilizing a large portion of your credit can be a red flag to lenders. They may think you are strapped a bit too thin and could miss repayments. Another way you can lower your utilization ratio is not closing your unused account- or any account, for that matter. Even if it is unused, as long as it does not cost you, keep it open. If you have below 30% utilization ratio, it is easier for the lenders to approve your loan application.
Don’t Apply For New Accounts Too Frequently
Every time you apply for a new credit card, a hard inquiry is made, which will be recorded in your credit report. The lender will pull all of your credit history from agencies, and it will stay in your credit report for two years. This process can lower your credit score because financial companies will account for 10% of your total credit score.
You can still apply for a new credit card if you need it. But you have to make sure that the lender will not perform hard inquiries. Once you apply for a credit card, the lender will inform you what type of inquiry they will conduct so you can still decide if you want to continue your application. Soft inquiries can’t hurt your credit score, so it can be a better option to avoid a decrease in your score.
None of us wants to have a bad credit score. Having a bad credit score can make it very difficult to apply for loans or credit cards. However, if you already have a bad score, don’t give up. You can still boost your credit score using the steps mentioned above. Make sure to be consistent, and you will be surprised how your credit score will improve.