Building Credit

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 small business 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 deal.

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.