Nov 17, 2020 03:07 PM EST

How a Credit Score Can Derail Your Plans to Be an Entrepreneur

How a Credit Score Can Derail Your Plans to Be an Entrepreneur

(Photo : How a Credit Score Can Derail Your Plans to Be an Entrepreneur)

You have big business ideas. You don't want those plans to get derailed by something as small as the number that sits on your credit report. Find out why you need to think about how your credit score can affect your future as an entrepreneur:

Credit Score Roadblock

Starting a business venture from scratch is expensive. Unless you're sitting on a substantial stash of savings or have some big investors on standby, you're probably going to have to apply for a business loan in order to get enough capital to bring your ideas to life. But small business loans can be hard to come by. Lots of aspiring entrepreneurs find that their plans hit a major roadblock once they go to the bank for funding and get turned away. 

One of the biggest reasons why business loans get rejected by big banks is that the applicant didn't have a high enough credit score. A lower credit score shows the bank that the applicant is a borrowing risk. Their score reveals that they did not handle repayments and credit limits responsibly, which means they have a higher chance of defaulting on payments for their business loan, too. 

The lender could give them a steeper interest rate or lower loan total to make up for the risk. Oftentimes, they deny the application and send the applicant away empty-handed.

Improve Your Credit Score:

So, what can aspiring entrepreneurs do when their score is not in one of the highest categories? Take some time to improve their credit scores. This change could be enough to eliminate the roadblock getting in the way of a new business. How can someone boost their credit score?  

Pay Bills On-Time:

Paying bills on-time, every time will have a positive impact on a credit score. If you are someone who has trouble keeping track of creditors and due dates, you should consider automating bill payments so that you never miss a deadline. All you have to do is make sure that you always have enough in your bank accounts to cover the costs so that you don't accidentally go into overdraft. 

Pare Down Your Debt: 

Heavy credit utilization can hurt your score. Put effort toward paying down your outstanding balances and getting your credit utilization ratio below thirty percent. 

Add to Your Credit Mix:

Having a variety of credit accounts can give your score a boost. If you think that your "credit mix" isn't strong enough, you should look into certain accounts that could add variety to this category as well as more available credit. 

A personal line of credit can be a great way to improve this factor of your score. You don't have to jump through a lot of hoops to apply for an account. Click here to see how you can get a line of credit offered through CreditFresh and to learn important details like what's the difference between a personal line of credit vs credit card. The information will come in handy. 

Correct Credit Report Errors:

A small error on a credit report could hurt your score. Before you accept your rating, scan the document to see if you find any mistakes. It could be that an account that you had closed is listed as open, or a bill payment that you made on-time was labeled late. If you spot anything, you can dispute credit report errors with the credit bureau and have it changed so that it stops affecting your score negatively. 

Don't let this information about credit scores dampen your entrepreneurial spirit. You can improve your credit. You can prove that you're a worthy investment. And you can get your business started. 

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