Generally, if your FICO score, the number that summarizes your credit risk, is less than 650, it’s considered subprime in today’s credit market. Fortunately, there are several ways to bring your ratings up a notch and make yourself more desirable to small business lenders.
Improve Your Credit Report: If your numbers are down, Denise Beeson, a small business loan officer in Santa Rosa, CA, suggests looking for ways to improve your credit report before approaching lenders.
Correct A Dispute: If an unfair bill went into a collections account in the past, try disputing the account with the credit bureaus.
• Dispute old items with a lender that has merged with another company.
• Change credit limits reported as lower than they actually are.
• Correct accounts that are still listed as unpaid, that were included in a bankruptcy.
• Remove old negative items that should have automatically fallen off your reports.
Solicit Advice: Sometimes the source of a loan will also help you boost your score, starting with these two places:
• Local Credit Union. Ask to speak to a business development representative. “A credit union is going to be a little more forgiving to the borrower than a big box bank,” Beeson explains. Unlike a bank, which answers to its shareholders, the credit union has a membership and is especially responsive to long time customers. What can they do? A credit union will look for ways to improve your credit standing, by, for example, providing you with a secure credit card to establish credit through the union.
• Community Bank. Beeson suggests telling the business development person that you’re interested in changing your banking relationship and you want to understand what they can do for you. What can they do? They may request that you transfer your CDs and money markets from other banks to their bank. “They can collateralize a loan based on those CDs,” Beeson says. “That improves your score over time, depending on your ability to pay.”
Hone Your Approach: From the first meeting, you should come across like someone worth lending to. Beeson offers these tips toward sending the right message:
• Arrive informed. To eliminate surprises, obtain the lender’s qualifications for small business loans in advance and be familiar with your credit score.
• Project preparedness. When you introduce yourself, say, “I’m in the process of rebuilding my credit score. Can you help me?”
• Think long term. Beeson estimates it could take a good six months before any changes appear on your report. Keep in mind that, in addition to improving your score, you want to build a relationship with the institution so that they’re more willing to lend you money in the future.