As an owner of a small business, you understand that taking out small business loans is often unavoidable. To be successful, most businesses need money in order to make money. It is just part of running a business.
Luckily, there are plenty of ways that applying for credit and paying down loans can actually help you, rather than seem like a big burden. One of the main advantages to applying for credit and paying on time is you can build credit, which makes you eligible for larger loans and other types of credit in the future.
Having great credit means lower interest rates, less expensive loans, and more freedom—and paying off current loans can help you build that credit you need. Whether you credit is completely defunct or whether you just have average credit and want to make it great, here are three ways to build credit while paying down loans.
- Pay on time and pay a little bit extra. Having a loan on your credit report can actually be a good thing, if you are actively paying it off. This will show that you can be trusted with a line of credit. Making regular, full payments shows future lenders that you are responsible with your debts, and that you pay them back as expected. As long as payments are made on time, just having the loan can help you build credit. If you pay a little bit more than is expected, this can continue to improve your credit score. If you have trouble remembering to pay your bills, you can even set up payment reminders.
- Keep credit cards active. Do not call and deactivate your old credit cards. People with high credit scores also have lengthy credit reports. If you have had a certain credit card for a long time, don’t just get rid of it. Use it only when you have real funds to back up the purchases, and pay it off in a timely manner. This will help to increase the length of your positive credit history, which is extremely important for a great credit score. The only time you would want to get rid of a credit card is if there is a large annual fee associated with the credit card. If you call and bug your credit card company, however, sometimes they will waive the fee to keep you on as a customer. It’s always a better option to keep a card open than close it, especially if you can get the fee waived.
- Don’t generate more debt. While you are paying off one loan and keeping on top of your credit cards, don’t generate more debt. Piling debt on top of debt is not good for your credit score. Pay off one loan at a time, whenever possible. Again, this shows that you are a responsible debtor who does not stretch themselves thin. You may want to show that you can handle more than one account at a time by having multiple loans or line of credit, but two huge loans at the same time can be dangerous.
Having debt is not always a bad thing. If you can apply for credit and manage your debt properly, you are actually doing a lot to secure better credit for the future.