One of the first steps towards starting a strong foundation for your
small business will come down to your background. If you have a good
credit history it will be easier to obtain that first
loan at a good interest rate.
Lenders are becoming stricter about the loans they offer, and this
comes at a time where many black Americans and minorities are struggling to make ends meat.
Having good credit history can help anyone get through a tough period,
such as being laid off at work, or unexpected bills. We will all need
to use a line of credit at some point, but if it is not available to
us, we may not have very many options to get money. Title pawn and
payday loans may seem appealing, but they are very high risk and
expensive. Anyone's best option is to build a good credit history.
What is credit
Credit is a term used in finance to explain the amount of trust a
company will extend to someone. When you get a home loan or finance a
car, a bank will pay the seller for your goods, and allow you to pay
the funds back over a designated time period. When someone is
referring to "good credit" or "bad credit" what they usually mean is
your actual credit score. This is a number based off your financial
history. Your credit score reflects the number of accounts you have,
or do not have in good standing. Most loans require qualifiers to have
a score of at least 630 to receive an offer; 720 is the minimum score
to take advantage of good interest rates.
Secure lines of credit
Secured credit cards and loans are the best way to establish, or
re-establish a good history. These offers typically come from major
providers and require a cash deposit as collateral. Companies who
require an advance payment to establish the account may sometimes
lower the rate or waive monthly fees. The annual rates and fees vary
dramatically on these types of loans, so shop around for the best
Keep accounts open and active
Once you set up credit accounts, keep them active and up to date. Many
people make the mistake of paying off their balance right away,
thinking this will help their score. This is very untrue, when you pay
off a balance the provider will no longer report the account as being
in good standing. If you want to avoid future debit, make a purchase
and keep a small balance. Many people use credit to buy appliances and
furniture, this will keep a small balance without creating thousands
of dollars of debit.
Pay on time
Many things can negatively affect your credit score, even things you
did not use credit to get! Paying your credit cards and loans on time
is a no brainer, but in order to stand a chance of keeping a good
score you must pay everything on time. Most companies will report to
credit agencies is you have a negative balance. This includes: utility
providers, service providers, and even daycares! Keeping up to date on
accounts is the only way to get and keep a good score.