Even a short period of bad luck and poor sales can ruin a business’s credit rating. Once your business accumulates a lot of debt or misses a few payments, its credit rating will fall quickly. This puts an incredible financial burden on your business, especially if you need a loan to make your business more profitable.
Unfortunately, there aren’t many quick ways to repair your businesses credit history. It will take time. If you follow these four steps to repairing credit, though, your business can qualify for lower interest rates that will help it thrive.
1. Dispute Inaccuracies in Your Credit History
About one out of five credit reports contain errors. That’s a serious problem for businesses that need to access low-interest loans. When lenders see harmful information on your credit report, they will probably turn down your application. If they don’t turn it down, they will raise the interest rate to protect themselves from risk.
When you find errors on your business credit report, you have to gather evidence showing why the item does not belong. In some cases, companies have mistakenly reported you instead of a similar business. In other cases, items seem to show up without any reason.
After you gather supporting documents, write a dispute letter explaining why the item does not belong on your report. This article should help you draft a convincing letter that solves the problem.
Companies have 30 days to remove errors. Keep an eye on your business’s credit history to make sure they remove it. If it’s still there a month later, you will need to follow up with the three major credit bureaus.
2. Reduce Your Business’s Debt
Your business’s debt accounts for about 30% of your credit score. If your business has a lot of debt, then lenders will not want to give you money without high interest rates. Secure debts (such as mortgages and loans on property) do not matter nearly as much as unsecured debt (such as credit card debt).
Reducing your debt could potentially raise your score by 20 to 30%. If you have high-interest credit card debt, focus on it first. Pay off as much as you can before applying for a loan. Lenders prefer clients who have access to a lot of credit, but who only use a small fraction of that credit.
3. Protect Your Business’s Existing Lines of Credit
Do not close any lines of credit. If you have lines of credit in good standing, keep them open so they can make your debt-to-credit ratio more attractive.
As you pay down existing debts, those lines of credit will start to improve your score. It may feel good to cancel an account and cut up your credit card, but that could lower your score.
4. Focus on Making All Payments on Time
Your business’s payment history makes up about 35% of its credit score. Late and missed payments will bring your score down quickly. That’s why you have to concentrate on making every payment on time.
If you have an office manager, you may want to put him or her in charge of this. If you think that you have time to take on the responsibility, then you may want to do it yourself. Regardless, you need to choose a responsible person who will pay bills before they are due.
On occasion, you may have to make a late payment. It’s unfortunate, but struggling businesses have to make tough choices. If you must send a payment after its due date, make sure you send it within 30 days. Most companies will not report late payments until they are at least 30 days overdue.
Hopefully you never have to make a payment later than 30 days. If you must, pay the debt as soon as possible. The longer you wait, the more damage it will have on your business’s credit rating.
Repairing credit for a lower interest rate takes a lot of hard work and commitment. Your business will not recover over night. It could take you months or years before you can get a low-interest loan. If that’s what it takes, then that’s what you have to do. As long as you focus on these four steps, at least you know that your business is heading in the right direction.