Now you know about your best financing options for getting a business loan with a bad credit score. But before you go, let’s make sure you understand why your credit score matters, how it affects your financing, and what you can do to improve it.
Lenders don’t lend money to businesses out of the kindness of their hearts—they want to get paid back (and then some).
That’s why they look at your credit score. Lenders need to make sure you’re trustworthy (or creditworthy, more specifically), and your credit score is one indicator they use. If you have a habit of paying back what you owe, you’re likely to have a good credit score. But if you have a track record of missing payments or you’ve defaulted on loans, that history will be reflected in a worse credit score (and in your credit report).
In other words, lenders use your personal credit score to figure out whether or not you’ll repay your loan—and whether or not they should lend to you in the first place.
Your credit score can affect both your chances of getting funded and the conditions of the funding you get.
Put simply, if you have a high credit score, you are more likely to get approved for loans. If you have a low credit score, you are less likely to get approved.
Even if you do get approved, your credit score can affect things like your loan amount and your interest rate. With a higher score, you’re more likely to qualify for higher loan amounts, lower interest rates, and more favorable repayment terms. But if you have a lower score, lenders might worry about your ability to repay a loan—which means they’ll give you a lower amount, higher rates, and shorter repayment terms.
So of course you want a higher credit score. But how do you get there?
Unfortunately, you won’t find many quick fixes for your credit. But with some patience and some good habits, you can improve your credit over time. Here are some best practices for building credit:
- Make payments on time
- Keep your credit utilization low
- Avoid opening too many accounts
- Check your credit reports annually
Again, it may take time to see results. (Think a few months at minimum, and likely longer.) But don’t worry—you can do it. We believe in you.