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If you’re getting ready to launch a startup but you have bad personal credit, you’re probably concerned that your credit score could affect your company’s ability to obtain funding. That would be a very valid concern because many lenders will take your personal credit score into consideration if your business hasn’t established any significant credit history. Luckily, you can ensure a better financial start for your company by taking the following personal credit rebuilding steps first.


1. Take Out a Personal Loan to Repay Your Debts

Taking out another debt to repay previous debts might seem counter-intuitive but it can actually be a very effective method of giving your credit profile a clean slate. You can click here to see examples of personal loans that are ideal for fixing bad credit. This kind of borrowing is also sometimes called debt consolidation because you’re essentially centralizing your debts into a single loan by using it to pay off all your other debts. Fortunately, as long as you can continue to make your repayments for that one loan on time, your credit score will actually go up. Elevating your credit score is imperative if you’re about to start a business that will require financing, as you’ll want to have a FICO score of at least 670 before you get started to ensure an optimal outcome when you apply for your initial lines of business credit.


2. Negotiate with Creditors to Reduce Debt Amounts

In most cases, if a debt has been outstanding for a while, the collection agency that it has been passed on to will have no problem accepting much less than the full owed amount to clear the debt. In fact, you can often get away with paying only 50 to 70 percent of the owed amount. However, it’s extremely important that you obtain a guarantee in writing to ensure that they will honor their end of the bargain after your payment, as there are cases where debtors will repay creditors an agreed-upon sum but the item still isn’t removed from their credit report. Thus, to safely negotiate with creditors, you’ll need a statement which provides assurance that the debt will be dissolved upon receipt of the payment.


3. Apply for Secured Credit Cards

If you have bad credit, you won’t be approved for a conventional credit card. Thus, your best option for rebuilding your credit will be to apply for a secured credit card, which offers guaranteed approval when you deposit an amount that is equal to your desired credit limit. For example, if you wanted a $1,000 line of credit, then you’d need to deposit $1,000 of your own money with the card company. Even though it’s your own money, as long as you pay back everything that you spend every month by the due date, these cards will work just like regular credit cards for credit rebuilding purposes.


4. Learn About Credit Utilization Ration

Utilizing all of your available credit is never a good idea because it shows that you have a constant need to max out your limits. Ideally, you should try to use no more than 30 to 50 percent of your overall credit limit – the sum of all your lines of credit combined. So, if you have five secured cards and each one had a $5,000 credit limit, then your total limit would be $2,500 and you’d want to utilize no more than $1,250 of that on a monthly basis to maintain an optimal rate of credit improvement. Your credit score won’t go down if you use more, but it won’t rise as fast either. 


5. Establish a Diverse Credit Portfolio

You might assume that clearing all the items and accounts off your report would be the best approach but having insufficient credit history can be just as bad as having poor credit when it comes time to apply for a business loan or line of credit. Ideally, you should try to establish between seven and 15 different credit accounts in your personal credit profile. Keeping that many accounts in good standing over a period of six months to a year will drastically boost your score and will have most people pushing into the 700 club. This works because it shows prospective creditors and lenders that you have a history of repaying a lot of debts in a timely manner.


Separate Your Personal Credit From Your Business Credit

In closing, it’s important to establish business credit as soon as possible so that your company can build a distinct credit profile which is separate from your own. That way, if you run into problems with your personal credit, it won’t affect the company’s ability to obtaining funding. Applying for a Dunn & Bradstreet number is one of the first steps you should take to give your business a credit profile of its own.

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