Credit is a pretty normal part of life. Many individuals started taking out credit as early as college through student loans, while many have also applied for loans to fund their startups.
Many borrowers see credit as a simple process of borrowing and repaying money through the agreed terms. However, for small business owners, its benefits go beyond providing quick cash during emergencies. Loans can also help you build your credit, thus helping you qualify for the best financial products as you expand your business in the future.
More than just taking out loans, we’ll delve into the other credit-building strategies that small business owners can try today. We’ll look closer at the practical tips that will work for most new entrepreneurs.
Avoid paying late
Regardless of any loan you qualify for, make sure to make timely payments. Whether it’s an auto loan, mortgage, or business loan, maintain an outstanding payment history by staying current on your loan and never missing a payment.
To avoid being late, you can automate your payments. This way, your loan provider can charge the account before the due date, ensuring you have no missed payments. For instance, you may check a provider’s website and see if they can set automatic loan repayments.
You can look for a trusted online credit services provider. Check if they can at least offer a $500 cash advance no credit check to verify that they aren’t highly stringent in screening loan applications.
Late payments over 30 days will be reported to the credit bureau. If you haven’t automated your payments and realize you have missed the due date, contact your bill provider immediately to make the payment.
Use less than the 30% limit of your card
Staying under your credit limit can help you boost your credit score. Experts advise using a maximum of 30% of your credit card limit. This can help you maintain a low credit card utilization ratio, which is issued to determine your credit score. Those with a single-digit credit utilization ratio tend to earn greater credit scores.
Moreover, you may also practice other credit card strategies like paying the balance several times throughout the month to keep it consistently low or paying down the balance whole before the billing cycle ends.
Other tips include setting alerts on your credit card accounts so you will know when your balance hits the limit. You may also set timetables through calendars to keep track of payment schedules.
Avail of a higher credit limit
Requesting a credit card limit increase can also help you boost your credit score. Of course, you must consistently keep your balance low. You can request a higher credit card limit from your credit card provider. They will run a credit check, which could cost you five points. Remember that higher credit limits come with greater responsibility. Do not overuse your high credit limit, and keep your spending habits on track.
Apply for a credit builder loan
Credit-builder loans (CBL) are far different from traditional loans. With CBL, you must pay before getting the money you want to borrow. Credit unions, among other legitimate financial institutions, offer CBLs. This type of loan involves depositing a small amount in a locked savings account. This could range from $300 to $1,000, and the borrower would consistently make monthly payments over a set period.
The term can vary between 6 to 24 months. The money will be paid out to you at the end of the term. Your payment progress will be reported to credit bureaus, boosting your credit score. However, you must take payment deadlines seriously, as late payments can impact your credit.
Ask to be added as an authorized user
If you are a young business owner and don’t have a credit card, you may ask a family member to add you as an authorized credit card user. This means you may use the card on their behalf, but you are not responsible for the repayments to be made.
The credit card’s history will be reflected in your credit card report, which entails that if the credit card holder has decent credit card habits, you may also enjoy a boost in your credit score. If any of you are irresponsibly using the card, both of your credit scores will be affected.
Add rent or utility payments to credit reports
Phone, rent, and utility bills are not typically reported to credit bureaus. However, you can find ways to have them included in credit reports. The three major credit bureaus (Equifax, Experian, and TransUnion) will include rent payments to credit reports if they receive it.
You may avail a rent-reporting service to get records of your rent payments to your lenders. If you do not have enough experience with credit, adding rent and utility payments can ultimately help you build your credit.
Final Thoughts
Through your credit score, you can show lenders that you are a responsible borrower. With such an impression, you may avail of other financial products with the best terms and interest rates in the future, especially when you decide to expand your business. It takes time to build your credit, but all of the efforts will be worthwhile as you realize you are gradually achieving your primary financial goal with the good credit habits you have mastered.