Your credit report is the indicator of your personal as well as business credit standings. Therefore, any negative marking on it can cause you rejection for any funding program you are in need of. You may not be able to get approved for bad credit business loans, but if you approved for one, you will definitely need to pay higher interest rates and to fulfill some other unwarranted requirements.
What Factors Will Cause A Bad Credit Ratings?
Here are some of the important factors that will hurt your credit ratings.
If you are paying late on any of your credit card purchase or late loan repayment, it will hurt your credit score seriously. Therefore it is important to make your payments on time in order to avoid penalty on your credit report.
Defaulting on Payments
Not paying on your credit card bills can lead you to bad credit situation. Furthermore your unpaid accounts will be charged off after some time. Therefore it is advised to avoid this situation.
When you are not paying your dues, the lender declares you for a charge-off situation. A charge-off status is extremely detrimental to your credit score.
Lenders have the option to lease or sell your delinquent debt in order to get payments from you. They take this step before putting you in charge-off situation. The role of collection agencies is to involve you in law-suits in order to make you pay. Therefore, make your payments on time to avoid such despondent situation.
Defaulting on a Loan
Default is a condition, where someone fail to fulfill an obligation. Keeping this in mind, defaulting on a business loan can affect your overall credit rating much like a charge-off. It is an indicator for your future lender that you are a credit risk.
Bankruptcy is a legal status that is most detrimental to your credit score. If you are previously experiencing bankruptcy, you need to clear it before applying for any business loan.
For borrowers who are not paying, foreclosure is the process that a lender will consider in order to collect his amount from the borrower. Defaulting on loan and foreclosure has the same effect on your credit report. If reveals your lender that you are not a good candidate for their funding programs as you previously experiencing penalties.
Judgements are the decision of court and are much worse than any other penalties.
How to Repair Credit Score?
Having bad credit problem can make many things complicated for you and your business. And the major one is rejection on any type of funding. Therefore, it is good to repair your credit score to avoid problems in the future. Here are some tips to follow to repair your credit score.
Timely Pay Your Bills
The first step in the direction of repairing your credit score is timely pay your bills and other payments. Almost 35% of credit scores are generally based on your payment history. Your payment history reveals your ability of paying all your bills timely. If you are not making your payments on time, it will damage your credit rating.
Reduce Your Credit Utilization Ratio
High credit utilization is a sign of your business’ financial difficulty and also an indicator of strong lending risk. Your credit utilization reveals the amount of revolving debt that you have compared with the amount of revolving credit that you have. If you have 30% credit available, you are considered as less risky borrower. Above 50% of credit utilization is a sign to reduce it.
Close and Cancel Your New Credit Cards
The fewer credit cards you have the better your chances are for having an excellent credit score. It is advised to close your new credit cards and use your old credit cards that are active and has history of transaction activities. It will also help you to increase your credit ratings.
Fix Credit Report Issues
Get a copy of your credit report from all credit bureaus (Experian, TransUnion and Equifax), examine it carefully for any mistakes, including outdated mailing address, email address, or any other spelling mistakes in the details. If there is any mistake, report it to credit reporting agency and discuss it with them to fix it.
How to Get Funding with Bad Credit?
Due to the fact that traditional lenders have stringent requirements, getting funding with bad credit from a bank or credit union is almost impossible at present. Alternative lenders have made the problem solved. You can get a business loan for bad credit from alternative lenders and that too at competitive rates. However the rates on bad credit business loans are somewhat high as compared to other types of business lending products. By paying on-time payments on bad credit business loan, you can get your cred back on the track.