By Brando Sencion, Program Coordinator of Community Ventures
For many entrepreneurs trying to start their own business credit is essential. Lacking credit can be a major setback for entrepreneurs willing to start businesses. The lack of credit means no access to loans, business wholesale accounts, leasing equipment or space, and more. So where should you start? Here are 3 ways to establish and improve credit.
OBTAIN CREDIT REPORT
Before you start to build your credit, it is important to obtain a copy of your credit report. Your credit report has information on where you live, how you pay your bills, and more. The report helps creditors, employers, and other businesses evaluate if you are a good candidate. Make sure the information is accurate, complete, and up-to-date. If you find any inaccuracy or incomplete information, be sure to correct it. Corrections of errors can help improve your credit history.
APPLY FOR A SECURE CREDIT CARD
We all have to start somewhere, and a secured credit card is a great option. A secured card is backed by a cash deposit you make when opening the account. The deposit will determine the credit limit on the card. You’ll use the card as any credit card. There will be interest and payment dates. However, the only difference is you opened it with a deposit to secure the account. After a few months, the financial institution will remove the safety net and offer you a credit card with no deposit required. Now that you have learned to use a credit card and have built history with a financial institution, you can continue to build your credit with other lenders.
PAY AT LEAST THE MINIMUM, PAY ON TIME
If you already have credit history, but it is not enough to qualify you for the lines of credit you need. Focus on building your credit with good habits. Building credit is a slow process and can take up to 6 months or a year to get within a desirable credit range. A good habit is to pay at least the minimum due on your bills and paying them on time. Payments make 35% of your credit score and heavily weigh on your credit history. Furthermore, keep credit utilization low, the balance and your credit limit should be at a healthy ratio. If existing debt is a problem, work to pay down the debts of credit accounts with the highest interest or lowest balance. Additionally, always pay more than the minimum amount, this will pay debts down faster and reduce interest build up over longer periods.