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By:  Victoria L. Pietz






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From Bad Credit to Good Credit    


You have made it through the rough times. Your business is booming and you want to expand. You have applied for loans, however, for some reason, you keep getting rejected. You may be wondering how this could happen to you. If there was a start up with your business regarding slow payment and missed payments on your part, you could have bad credit.

If you are trying to get that first loan for your business, you will want to take steps to establish credit. While this seems two sided, it is not. You don't necessarily need to take out a loan to establish a credit history.

Establishing Good Credit History

1. Open a checking account in the name of the business and your name. Balance your checkbook each month to make sure you don't overdraw your account. Make sure that you always remain over the minimum requirement. Never write out checks before the money is in the account. These days, money can travel faster than you can when trying to cover checks that are written out before you can get the money into the account.

2. Open a savings account in the name of the business and your name. Even if you are just barely making bills, make sure to put money into this account. You may have to make payroll tax payments, property tax payments, etc. the money you would use for this, put into the savings before you make the payment. Not only can you accumulate interest, you will show money going into and out of your savings account. Your best bet would be to put at least $25 into your savings each week and not touch this money. Some banks will help you establish credit by taking out small personal loans using savings accounts as collateral. This will help you build good credit a little at a time.

3. Paying bills on time. Even if you never have had a loan to repay, the payment history on your rent and utility bills can help prove your good credit history.

4. Apply for a credit card. There are many low interest rate credit cards available today. These credit cards are generally available to people with little or no credit history. You will start with a low loan balance, and based on your payment history, the credit card company may raise your available credit. This is a fast easy way to establish credit, however, you must be careful not to use the card on things that are not really a necessity. If you don't make the payments monthly and on time, there are generally high interest rates applied to this type of card and you will also be establishing bad credit instead of good credit. This card should be used with care.

5. Cosigner. You may know a friend or relative that would be willing to sign for a small loan to get your credit history started. While this method will most likely get you that loan, please make sure that you can repay the loan and do not forfeit, as the person that helped you by signing the loan will be responsible for the payment if you default. This could ruin a great relationship if not handled properly.

Whether you are trying to repair bad credit history or create new credit history, lenders generally look at the following list when determining your ability to pay back the money that you borrow.

  •  Stable. Do you hold a steady job, does your business bring in a steady dependable income, or are you seasonal, or worse yet, hit and miss on client's payments. How long have you been in business? Are you well known, or at least known as a good business? How long have you lived at your address? Do you have friends and neighbors that you have known a long time that can give a reference?
  • Repayment ability. Do you pay your bills on time? Do you have a cash flow statement of your business? Can you pay your expenses of the business and still have enough money left over to live on? Have you figured in the cost of the payment of the loan into your monthly expenses?
  • Assets. Many lenders will ask for something of value to use as collateral on your loan. Do you have anything of value that can be used for this purpose, such as: car, home, savings, retirement account, antique?
  • Credit History. Lenders will also want to know how you have paid other bills. They will want to contact other creditors to find out. Do you do business with any other business that you pay on a timely basis that could give you a good credit reference?

One final thought. As you apply for credit, don't go to too many banks, or credit card lenders all at once as they may search the well-known credit history databases for information regarding your credit history. The major credit history agencies keep track of how often your account is accessed for this type of information. If too many places perform a search, your potential lender may be turned off by this fact alone.

As you set out to repair or start a good credit history, tread wisely. Much thought and work must go into keeping and attaining a good credit history. Good luck to you.




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