Improve Your Bad Credit Score in 8 Simple Steps

When it comes to your credit score, it can often be a mystery to why you may have a low score. Luckily, there are plenty of ways to increase a bad credit score even if you can’t pinpoint why it is low or feel like you do not have the means to increase it. Follow these 8 simple steps to get your score back on track, especially if you are in need of bad credit business financing.

Be careful when applying for credit. Each inquiry can hurt your credit. We have seen many startup business owners start the process of looking for a business loan with a good credit score, ruin their credit with excessive inquires!

1. Be careful of where you apply for credit

Every time you apply a new line of credit, it negatively affects your score.  Too many of our clients come to us and tell us of how they started looking for their business financing with a 650 score but after a few days of applying with different lenders, their score is now around a 610.

Just by indiscriminately applying for small business financing took them from “fair” credit to poor, bordering on bad.  Yes, we still got them financing, but we could have approved them with better rates and terms if they had been more careful of where they applied.

Click here to learn how to protect your credit score while applying for a credit card or loan.

Tips to save your credit score when looking for business financing:

  • If you are a start-up business – before you apply, make sure the lender works with a business as new as yours.  Many lenders have a minimum time in business even if they say they work with start up businesses.  We can work with a start up business from their first day.  But many lenders require 6 months TIB
  • If you have credit problems – make sure the lender can work with someone with your credit score and the reasons behind your low credit score.  Again we see too many clients come to us after applying to numerous “bad credit lenders” and being turned down.  They could have saved themselves a lot of trouble by talking with the lenders before applying.

Wondering why your credit score is low? Payment history is 35% of your credit score. Late payments can easily ruin your credit.

2. Get in the habit of paying your bills on time

35% of your score comes from how you pay your bills.  If you are a habitual late payer, your credit score is suffering.  Use your checking accounts bill pay feature.  Even if you are only making the minimum payment, you want to make sure its getting to your creditors on time.

Start to monitor your credit.  Identity theft has become easy.  A credit monitoring service like Lifelock has become essential in today’s society.  You don’t want to find out too late that someone is using your credit and leaving behind a huge mess for you to clean up!

Bad credit? Build NEW credit to start improving your credit!

3. You need credit cards and loans to have a credit score.

We see this a lot with our clients with previous bankruptcies.  They are a bit “gun shy” to open any new accounts.  But that’s a big mistake.

You don’t want a lender to pull your credit and see nothing but negative tradelines.  You want to open new lines of credit to show that you can now handle your credit and you’re making all your monthly payments on time.

With our startup business and bad credit business owners we encourage them to use their new equipment lease to build credit for their BUSINESS.  An equipment lease can’t be used to help rebuild PERSONAL credit, but its a great tool to use to build business credit!

There are many reasons why you want to be careful about which accounts you close! Closing the wrong credit card account can cause a major drop in your credit score!

4. Be careful with closing credit card accounts.

When you close your account, it doesn’t make the negative tradeline disappear.  And it can actually HURT your credit score if you are closing your oldest accounts or the accounts with large credit lines.

Remember age does makeup 10% of your credit score.  And 30% of your credit score is how much credit you are using.

So choose which cards you close wisely!Secured credit cards and loans can be a HUGE help in not just obtaining much needed financing. But in helping to build or rebuild credit.!

 

5. Use a secured credit card or secured loan to build credit.

Secured credit cards and secured business loans are great ways to not just get financing but to build credit.  Especially if you have credit problems.

Since they are secured by money or some sort of collateral, a low credit score or even a bankruptcy won’t cause it to be denied.

A popular program we have here at Leasefunders.com is a secured business loan that is secured by business equipment.  This loan is used by our clients for everything from payroll and working capital to purchasing inventory even buying more equipment.

Learn WHAT comparable credit is and WHY its so important when you are looking for financing.

6. Diversify your tradelines and don’t forget about comparable credit!

Banks like to see that you can handle different types of credit.  So when you are in the “rebuilding” phase.  Don’t limit yourself to just applying for credit cards.

When you NEED it.  Think about diversifying your tradelines.  Credit cards, mortgage loans, installment loans, retail accounts, gas cards etc.

And don’t overlook the importance of COMPARABLE CREDIT.   This happens alot.  We get a client with a credit score of 720 and they feel they are “golden” and ordinarily they are.

But when you look at their credit report they may have a few tradelines with credit limits of around $500 – $1000.  They may also have a lot of “new credit” (tradelines less than a year old).

This makes their credit file a bit too “thin”.  When you are looking for a $25,000 equipment lease but the highest tradeline you have is a $500 credit card.  Thats a big leap.

The bank wants to make sure that you can handle a $25,000 lease.  That’s why even with a 720 credit score the bank will ask for a co-signer with more credit experience.

Looking for financing? Make sure your debt to income ratio is low! Not only does a high debt to income ratio pull down your credit score. But it can make a lender think you have too much debt and they decline your financing request.

7. Pay off your debt.

This makes sense, but to explain in further detail, you need to create a plan to reduce your debt as you may be cutting into your credit utilization. The more you pay off, the more you have available, and the higher your credit score will be.

 Check out our 8 tips to help you build credit! You can use these tips to build or rebuild your personal credit! We also give tips on how to build business credit!

8. Use your credit card regularly..but wisely.

Long gaps between using your card and barely using it at all will make creditors either close the account or reduce your credit limit.  I still have a department credit card I got right out of high school that I use a few times a year to keep the account open just because the age of the account helps my credit score.

Always keep in mind you want to build credit, not be in debt.  So use your credit cards wisely and get in the habit of paying them off at the end of the month.

Remember that increasing your credit score is a process that takes time. Follow these tips and a better score will be on the way!

Watch the video on Improving Bad Credit!

 

Related Articles:

Kinds of Bad Credit Business Financing
Business Financing Even With A Bad Credit: Loans From Family or Friends
Business Financing Even With A Bad Credit: Unsecured Small Business Loans
Business Financing Even With A Bad Credit: Secured Small Business Loans

Liz Roberts has been in the business financing industry for 20+ years. She got her start in banking, went on to consumer and commercial collections and then onward to becoming a senior credit analyst for several small leasing companies. She has also been a freelance writer for 15 years and has written about business and consumer financing on several blogs.  She also maintains a low carb living blog.

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