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How to Use a Bad Credit Business Loan to Improve Credit
January 08, 2018
How to use a bad credit business loan to improve credit

How to Use a Bad Credit Business Loan to Improve Credit

When you receive a business loan, it’s a prime opportunity to build an excellent credit history. In fact, if you have a low credit score, it’s a great chance to show that your current credit situation doesn’t paint the whole picture.

In this post, we’ll detail how you can use your business loan to improve your credit score. Raising your credit score by just 10 or 20 points will afford you lower rates for future loans, and will ensure that your business is in better financial standing.

Submit Payments Early or On-Time

Remembering to make loan payments can be difficult, but you can make it easy by setting up automatic payments. If you consistently pay earlier than the due date, your score can improve. For instance, Dun & Bradstreet only gives perfect scores to those who pay early.

Keep Your Information Current

Unlike personal credit scores, each business credit bureau calculates your business’s credit score differently. For example, Dun & Bradstreet has a business profile that you can update with basic information like years of operation, number of employees, and financial statements.

It’s prudent to maintain your information across all of the major credit bureaus like Experian, Equifax, and Dun & Bradstreet, since you can’t predict which bureau future lenders will check with. The more complete your profile is, the better you look to potential lenders.

Borrow from Lenders Reporting to Credit Bureaus

Before borrowing, make sure that your lender reports to a business credit bureau. As we mentioned earlier, padding your credit report with timely payments is a fantastic way to boost your score faster. Still, if your lender doesn’t report, you may never see the results from your good habits. Simply ask your lender if they report to a credit bureau, so that you’re aware of this prior to applying.

Monitor Your Credit Report and Fix Any Errors

Although you have to pay to check your business’s credit score, it’s wise to check it at least once or twice a year. When approaching a lender, you should know your business’s score. Then, after a few on-time payments, make sure that your credit score is trending up.

Your business’s report also includes everything filed under your business’s name, like bankruptcies, judgments, and tax liens. Ensure that any of these are promptly removed from your report as soon as it is possible. Fixing any errors usually takes about a month, so start early.

Consolidate Any Other Loans

If you have any outstanding debt, consolidate what you can. This often lowers the overall payment slightly and helps boost your credit score, because you pay one loan payment per month, rather than four or five.

Mitigate Any Damage to Your Credit Score

If you’re involved in a dispute, don’t let it go to collections. Pay it under protest, and go to small claims court. If you are sued, it will negatively impact your score. In addition, if you are planning to close a credit card account, think twice. Is there any reason not to leave the account open for a little longer? Although there can be some benefits to closing an account, it can certainly hurt your score.

Do Business with Those Extending Trade Credit

Most third-party vendors from whom you buy supplies, ingredients, and other materials extend trade credit to their customers. With trade credit, you can pay several days or weeks after receiving the inventory.

Ask your supplier to report your payments to a business credit bureau. To be listed on Dun & Bradstreet’s Paydex platform, you’ll need at least three trade lines. An easy way to start is to ask your smaller vendors to report to the bureaus, or you can submit this information to the business credit bureaus yourself.

You Don’t Need Credit to Build Credit

Just because you currently have a low score doesn’t mean it can’t be improved. It’s not easy to improve your credit, but with some careful planning, you’ll be able to start raising your score.

It’s never a bad time to start improving your business credit. What have you done to increase your business’s credit score over the past few years? Let us know in the comments below!

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].
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