5 Things You Can Do to Improve Your Credit Score If You've Been Denied Grants or Loans

If you have applied for a small business loan (either through federal COVID-19 recovery programs like the EIDL or PPP or through a private lender) and been denied, it’s possible that your credit was to blame. Having a credit score that is too low is one of the most common reasons for loan denial across industries. Most lenders will check both personal and business credit before offering a loan, and if either is too low it could impact your eligibility.

Building credit can take years, but there are proactive steps you can take as a small business owner regardless of your current business or personal credit score. Follow the five steps below to improve your business credit and access financing.

1. Pay Creditors Early

If you can, pay both business and personal credit card bills and other creditors as soon as you get your bill, and most importantly before your bill is due. If you don’t have at least one credit card, make sure to establish one, and use it each month. Spend about 20% of your monthly credit limit if you can, but never spend more than you can pay off each month. As you continue to pay creditors, your score will improve.

Credit card companies and loans are the most common creditors, but there are other payments you can report too. For example, you can use rent-reporting services to report your rent payments to credit bureaus. You can also request to have utility bills included in your credit score for Experian, which is one of the companies that reports personal credit.

2. Make Sure You Have a Profile with all 3 Major Credit Bureaus

The 3 major bureaus that report personal credit, TransUnion, Equifax, and Experian, have a standardized process for determining credit scores. But business credit is more complex, and the bureaus have different ways of measuring it, so you need to have a profile with multiple bureaus.

To improve your business credit score, you'll need to make sure you are on file with all three major bureaus that handle business credit: Experian, Equifax, and Dun & Bradstreet. You can check on your scores and upload financial documents online with the bureaus. The more complete your profiles the better, since you don't know which profile a potential lender will check.

3. Ask your Suppliers to Report to a Credit Bureau

To improve your business credit, you can utilize the same suppliers you are already paying. Many business vendors and suppliers offer “trade credit”, which means that customers pay after they receive the inventory (sometimes up to weeks later). If you have a trade line with a supplier, ask them to report that to a business credit bureau. Three trade lines or more will begin to impact your score. If you don’t have a trade credit relationship, consider asking your suppliers to establish one.

4. Take a Loan from a Lender that Reports to Bureaus and Accepts Lower Credit Scores

There are lenders who will offer loans to people and businesses with lower credit. Some don’t report to the credit bureaus, but others do. Sometimes loans that are offered to people with poor credit are called "credit building loans" or "start over loans"; they only require enough income to make payments on a loan, not good credit.

Take some time to research lenders who you might be able to get a loan from. Some examples of lenders who take on low credit borrowers and still report to the bureaus include Lending Club and BlueVine. Check out this cheat sheet for a full list of lenders to consider.

Never take on a loan that you don't need or cannot pay off, however. Being behind on a loan will hurt your credit.

5. Check your Score Often and Keep Public Records Clear

For both personal and business credit, checking your score regularly is actually an easy way to improve it. If you’re checking your score frequently, you’ll be more likely to catch issues like credit fraud. You’ll also be able to monitor how your efforts to improve your score are going.

You should also check your public records and note anything recorded against you or your business. Unfortunately, records like court rulings, bankruptcies, and debt can devastate your credit score. Avoid these whenever possible and always pay fines and taxes on time.

Being denied for a loan is discouraging, especially if you’re a small business owner trying to operate through a recession and a pandemic. Financing isn’t completely in your control but improving your credit score will make you more attractive to lenders in the long run. Each action you take to improve your credit, whether it is establishing a business credit card or creating a profile with a credit bureau, has an impact on your overall favorability for a loan. We frequently publish small business tips here on our blog, so check back for more financing news.

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