When you have a strong credit score, it makes it easier to start up a new enterprise. Many business savvy individuals have to put up their entrepreneurial ventures on hold due to their poor and sometimes nonexistent credit histories.
Building credit might seem impossible for young business owners, especially if they are in school. However, the more they learn about basic credit management now, the better prepared they will be to secure the business credit the need in the future. Young business owners and entrepreneurs should start building their credit as early as they can although establishing a sold credit history does take time.
Know What Lenders Look For
You need to understand what factors creditors and lenders look for when they consider reviewing your application before you begin searching. Creditors and lenders consider a number of variables that affect your credit score. Yearly earnings, net worth, residency, and utilities listed in your name are a few factors that indicate your credit worthiness and financial stability. For example, making rent and utility payments on time factors into your credit history and lets people know that you are responsible and reliable when it comes to paying bills.
Build Experience with Store Credit Cards
Whenever we go to stores, they try to convince us that we need to open a store credit card to receive an incentive like a certain percentage off our purchase. These store credit cards can help you build good credit.
Make sure that you make the minimum payment each month and pay more if possible. Otherwise, you will be left paying high interest rates that negate whatever you saved by signing up. Using a department store card can help you gain basic credit experience as long as you understand that you need to make timely payments of the charges you make on that card.
Take Advantage of Secured Credit Cards
Open a secured credit card if you cannot be approved for a store credit card or you have previously fallen behind in credit card payments.
A secured card requires you to provide a cash deposit before you can use the card and becomes the limit for your account. Secured credit cards are similar to regular credit cards in which they might have application fees, annual fees, and processing fees. Make sure to shop around for the best card with the lowest fees. Make sure that the card provider reports to all three major credit bureaus, otherwise the card will be pointless when it comes to building your credit.
Manage All Cards Responsibly
Once you have been issued a few cards, you need to manage them responsibly. Do not get caught in the trap of purchasing things you cannot afford because then you will go into debt. You need to have a means with which you will be able to pay your bills.
Make sure that you can pay off at least part of your credit card debt each month. Also, remember that you do not necessarily need to pay your balance in full each month. Despite the interest that you will be charged, carrying balance can improve your overall credit. A major aspect of your credit score considers how well you can manage debt over time, not just from week to week or month to month.
Check Your Credit Report Regularly
Credit reports are not perfect. It is common to find mistakes on them so make sure to check your credit report regularly. This will ensure the report is up to date with the correct information and that you have not been the victim of fraud.
Separate Personal Finances from Business Finances
Keeping your personal and business finances separate, not only provides your business with credibility, it reduces your personal liability, helps you manage your taxes, bills and other payments.
The Bottom Line
Having a strong credit score is extremely important for any young business owner and entrepreneur. Unfortunate, many individuals struggle with their credit however the information above should be taken seriously in order to improve and grow a credit score.