Damaging your personal credit history can be devastating to you if you plan on applying for a business loan to launch a new business Having a damaged personal credit history will surely stand in the way of you getting approved for small business loans as quickly as you would like. Although millions of people in America have seen their credit scores bounce back to the 700 and above range since the Great Recession, (according to Time Magazine), there’s still a high percentage of the population lagging behind (especially those who want to start businesses). Below I outline 4 tips that you can follow if you’re one of those people whose personal credit still hasn’t improved.
- Pay down your current debts – The best way to restore your personal credit history and increase your credit score is to begin paying off the accounts that have contributed to lowering your score in the first place. This may sound easier said than done (for some) but the best way to get any negative, derogatory, or delinquent accounts paid off is to pay them one at a time or little by little. The sooner you get started on it, the sooner you’ll be able to qualify for the small business loan needed to get your company up and running.
- Negotiate with your creditors – Paying off delinquent and/or derogatory accounts won’t cut it alone. This is because once the account is paid off, the creditor can still report it for up to 7+ years. Having a delinquent or derogatory account on your personal credit history for this long will surely stop you for being able to qualify for many forms of new credit. I suggest negotiating a “Pay for Delete” with your creditors, asking them to permanently remove the delinquent or derogatory account if you agree to pay it in full. This may take some skill and charm, but if you’re persuasive, it could work. (Click here to see an example of a “pay for delete” letter).
- Establish new, positive credit – The only way you can rebuild your credit history is if you establish new, positive credit. I suggest doing this in the simplest way possible, by obtaining a small secured credit card. Secured credit cards can be opened using your own money and can have limits of up to $500.00 (or more in some cases). A good example of a secured credit card would be Capital One’s Secured MasterCard.
- Separate your personal credit from your business credit – Once you have taken the time to pay off your debts and negotiate the removal of the derogatory or delinquent accounts from your personal credit reports, (and increased your credit score), you may be able to qualify for small business funding strictly using your improved personal credit history. Particularly, unsecured business lines of credit. According to the 2009 Small Business Credit Card Survey, lines of credit are a popular small business financing option (especially for new business owners).This type of funding can be fairly easy to obtain if you have a stellar personal credit history. Additionally, it can be obtained in the name of your business, thus enabling you to separate your personal credit history from your business credit history. This will further enable you to maintain the exceptional personal credit history you have built, all while still being able to utilize and build business credit.
Rebuilding a damaged personal credit history can take quite a bit of time depending on your unique situation. However, it is completely worth it if you plan on taking out small business loans. If you have no other means to fund your small business, rebuilding your personal credit history to borrow the money may be the only way you can reach your goal. If you need help rebuilding your personal credit history, it may serve you well to seek the help of an expert. An expert may be able to help you design a plan of action that will help you reach your personal credit goals as quickly as possible.