If a key piece of equipment failed tomorrow, would your credit be good enough to get the financing you need?
If that question makes you anxious, you’re hardly alone. Thousands of small business owners have poor credit and find themselves stuck fast when they enter a situation in which there’s a critical need for operating capital or equipment leasing financing.
Poor credit doesn’t mean you’re doomed, as an ounce of prevention is indeed worth a pound of cure when it comes to credit. Taking steps to build your credit up in the here and now will save you a lot of headaches when you actually move to obtain financing.
One of the most important components of your credit is the credit report. The score there can make or break your bid for financing, so it’s key you know why it affects you.
When you’re out to get a handle on your credit, you should first understand what is weighed to produce your final credit report. The biggest components, accounting for about 65 percent of your report, are payment history and amounts owed. It may be obvious, but it’s worth repeating that if you’re frequently behind on payments and have amassed a ton of debt, your score is going to be lower than a snake’s belly. Length of credit history, new credit and types of credit are also important, so diversify your credit use and make sure you have a handle on it as early as possible in your business’s lifespan.
Be careful with those cards, though. Because outstanding debt is such a big piece of the pie, the fact that companies are easing credit limits can actually work against you if you’re carrying a lot, even if you’re not actually altering your spending habits.
Strategies For Maintaining Good Credit
So how do you keep your credit from going to rubble? Caution and the spirit of punctuality help.
Strive to pay off all your debts on time. It may not always be possible, but if you get into a pattern of late payments, your credit can plummet. To help with that, avoid biting off more than you can chew. If you plan for equipment failures and other big ticket items far in advance, you’ll set yourself up to avoid making too much less-important purchases in the interim.
Also, it should go without saying that you don’t want to be careless with your credit cards. I’ve had my personal credit card information stolen twice—explaining to the nice lady at my card company that I had not flown to Europe to buy $2,000 worth of tools was a delight the likes of which I have never known—and though both of those times were driven by bad luck, there are steps you can take. Only use your credit on websites you’re comfortable with, regularly sweep your computer for malware that can steal your information and transfer it to those who will use it unscrupulously and avoid using it more frequently than you have to.
At Direct Capital, a representative can work with you to find out if you can be approved with your credit, and we’ll have more resources for you tomorrow. We hope this post was helpful to you, and we hope you’ll let us know about your own experiences with your credit.
Photo credit to mihow at http://www.sxc.hu/photo/1259850