If you have been looking into the financing options for your business, you might have heard the term credit score multiple times now. Businesses need financial support to establish their venture in the industry, but for startups, it is difficult to get loans approved as money lenders need a lot of security before financing a business, which is fair. Imagine if you were a money lender. Would you be willing to give money to a business that has nothing to offer and a bad credit score?
Credit score plays a vital role in the approval of any business loan. If you are a startup, the lender is most likely to check your personal credit score. This is done to identify whether you are a defaulter or not. The lender doesn’t know you personally, so they need something to trust you. Your credit score will tell them about your billing history, and if you are a defaulter, there’s a good chance that the lender will not trust you with the money.
There are also many other factors that affect your business loan approval, but in this blog, we will calculate the Impact of credit score on loans so you can understand the importance of it and start working towards maintaining your credit score.
Importance of Credit Score
Many businesses don’t think too much of it, but credit score can really make and break your application. Lenders don’t have any other way to identify your eligibility, and your credit score tells them whether you will pay your debt on time or not. It is important to maintain your credit score, and you can do that by paying off your credit card bills on time. If you have a bad credit score right now and you are thinking of getting a business loan in the future, you should start maintaining it. Without a good credit score, getting your business financed might not be possible because most money lenders check credit scores before issuing the funds.
If you have a good credit score, your application process will become much easier, and the chances of your loan getting declined will be much less. There are still other factors that can affect your chances of getting a loan, but once you maintain your credit score, it all becomes easier. Other factors that can affect your loan application are;
Income
You don’t have to be an employee of a company to be eligible for a loan, but you need to show a stable income. Lenders won’t provide you with a loan if they don’t think that you’ll be able to repay it. This can only happen if you have a stable income. This is not a problem for old businesses as they can show their revenue and get their loan approved, but it’s slightly more difficult for startups. New businesses don’t have any revenue to show, which means that they have to show their income through other means. If you are employed or have a stable income through other means, your chances of getting loans will increase.
Current Debts
No matter how much you earn, if you have too many current debts, it will also decrease your chances of getting a business loan. No lender would want to lend their money to a business that’s already in too much debt. This will only make them more skeptical about whether you are making good money or not. If you need that many loans to run a business, it indirectly implies that you are not generating enough income, and this makes your application not as trustworthy.
How to Boost Credit Score Before Applying?
There are a few ways to boost your credit score before applying for a loan, and the following are some of them.
Focus on Payments
If you have a bad golden credit score due to late payments, you should start focusing on it now. Late payments can cause you to have a bad credit score, so make sure that you make on-time payments for your credit cards. It is hard for you to use an autopay system that automatically pays your bills every month. This way, you can maintain a good credit score, and that will help you get a business loan in the future.
Decrease Your Credit Utilization
Paying your debt decreases your credit utilization and increases your chances of getting a business loan. So make sure you understand the importance of it and calculate the impact of credit score on loans.
Avoid New Accounts
You should also avoid making any new accounts if you want to maintain your credit score. New accounts under your ID can make you look suspicious and decrease your chances of getting a loan.
If you are looking for a business loan but don’t have a good credit score, reach out to 0Percent. They provide business loans to startups to help them gain financial freedom with a 0% interest rate for the first 20 months.
