When you apply for a loan for your small business, your personal credit rating often plays a role in whether or not you are able to obtain financing. Your credit report tells a story about how well you’ve managed credit. You can obtain a free copy of your credit report from one of the two main credit bureaus in Canada, Equifax or TransUnion.
Here are some tips on how to maintain or improve your credit score.
1. Pay bills on time: Ideally, you should pay your bills in full and on time. If you can’t make the full payment, then at least pay the minimum amount by the due date.
2. Keep your credit balances low: While your credit card may permit you to borrow up to $10,000 or more, it’s a good idea to maintain a gap between your credit card balance and your credit limit.
3. Deal with derogatory items: If there are derogatory items like foreclosures and judgments on your credit report, then don’t just ignore them. If you really do owe money, repay the amount to the creditor and then ask that any negative comments be removed from your report.
4. Demonstrate that you can manage different types of credit: Credit can take the form of revolving credit (like credit cards) or installment loans. If you’ve never had a loan, take out a small personal loan that you can pay off. If you can’t get a regular credit card from a major bank, inquire about getting cash-secured credit card or consider a department store or gas card.
5. Don’t submit lots of credit applications: Submitting lots of applications within a short period signals that you may be desperate to find credit (a “credit seeker”).
6. Use an old credit card: If you stop using an old card or cancel it, then this may lower your credit age and thus your credit rating. This is something to keep in mind when you’re thinking of switching cards because of low starting rate offers.
By improving your credit, you will have a much better chance of getting financing for your business and accessing lower interest rates.