If you are thinking of applying for unsecured business loans to fund your company, keep in mind that you’ll need to have pretty good personal credit. It takes much more than having good business credit to obtain an unsecured business loan, your personal credit is also important. In fact, your personal credit is much more important that your business credit when applying for an unsecured business loan.
Lenders that offer unsecured business loan financing will focus primarily on your personal credit history to determine if you qualify. If you have a few things that need to be cleaned up on your personal credit before you apply for an unsecured business loan, here are a few quick ways you can improve it:
- Become an authorized user – I recently had my father add me as an authorized user on his Capital One credit card. He has been making timely payments toward the credit card since he opened it. Within one month of adding me as an authorized user, my credit score increased between 50 and 74 points on all three credit bureaus. While all lenders do not take authorized users into consideration when determining whether or not you qualify for an unsecured business loan, there are many who do. Adding authorized users to your personal credit history is a quick way to improve your credit score so you can have a better chance of qualifying for an unsecured business loan.
- Pay down credit card balances – If you have personal credit cards in your name, paying down your balances on those credit cards could quickly improve your credit score. This is especially true if your credit card balances are more than 30% of the total credit card limits. It is suggested that your credit card balances be below 30% of the total available credit limits before you apply for unsecured business loans (or lines of credit). Paying down your credit card balances will not only increase your credit score, it will also increase your chances of getting approved for an unsecured business loan.
- Find and correct errors – Finding and correcting or removing accounts that are negatively impacting your credit score and ability to borrow is another way to improve your credit. However, this process is not always as quick as the others.
- Keep paying on time – Making timely payments is the key to having a better chance of getting approved for an unsecured business loan and other types of financing. If lenders see that you consistently pay your bills on time, you chances of being approved increase dramatically.