Starting a Small Business in Canada With Bad Credit
So you decided you want to start a small business in Canada, but you have bad credit. Well, you are not the only one. In fact, a large percentage of Canadians are in the same situation as you.
When starting a small business, you do need a credit score fix, so we have taken the time to show you the problems so you can overcome them and fix your situation. The main reason is that you don’t want to get into business (which costs a lot of money) while being in the negative. You want everything to start off positive, thus your credit score fix must be one of your priorities before you start a small business.
Consider the fact that you may need to visit a bank for a loan. Do you really want to be denied due to your credit score?
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Credit Score Fix Before You Start a Small Business in Canada
Before we get into the credit score fix, it is important for you to know the problems which originally create the issues with your score.
First Problem: Missing Your Credit Card Payments
Missing your payment is pretty bad. But every once in a while, if you make a mistake or you forget, it is natural. In the long-term picture, one or two missed credit card payments isn’t really a big deal. The real problem occurs when you regularly start missing payments.
This also depends on how long you’ve had the credit card.
Consider that you just obtained a credit card, started using it, and you miss your first two payments. How do you think the bank will look at your profile?
As a potential small business startup entrepreneur, consider it as if you were to hire an employee, but the employee doesn’t show up to work for the first few shifts. What would you think?
The longer you are with a credit card company, the more trust they have in you. This means that a late payment here and there will not impact your credit score much. But it is still something to try and avoid as much as possible because the more late payments you have, even if you are with the same credit card for ten years or more, they eventually start to look at you differently.
One way to avoid this problem is to schedule your payments to automatically be taken out of your bank account. This way, you can schedule just minimum payments to be made so at least they are not late. At a later time, or whenever you can, pay off as much of your balance as possible.
Second Problem: Having a Lot of Credit Cards and a Lot of Debt
Your credit score may be affected in two ways with this problem. The first way is that you may have too many credit cards. Some consider having a lot of credit cards to be a good thing, but it all depends on how you look at things.
Signing up for credit cards from chain stores, online stores, every bank you do business with, and other promotional stores may seem like they give you something in return such as access to cash, but they also alert the credit agency that you just applied for credit.
If too much credit is given to you, it could eventually lead to you not being able to get more, even if the credit card balances are low or at zero.
The second issue is that you start to use all of the credit cards and keep a balance on all of them. Depending on the way you look at it, this could be good or bad.
If you have balances on any credit card where you use 75% of your available credit, the credit agency will flag your account and you will be monitored. This will slowly start to decrease your credit score as it shows the bank and the credit agency that you are not managing your money properly, especially if you are not paying off your balance.
The Solution for This Credit Score Issue
The solution for a credit score fix is to keep your balance below 50%.
The best solution is to pay off your full balance each month in order to maintain the strongest possible credit score.
Keeping your credit card balance at 50% or lower is best.
Third Problem: Unpaid Collections on Your Credit Report
Sometimes you forget to pay certain bills. After some time, businesses such as utility companies or cell phone providers report these missed payments to the credit agency. This hurts your credit score and your credit report.
These businesses need their money. When you forget to pay, they issue warnings.
Often, these bills can be paid on time to avoid this situation altogether. Otherwise, once your credit is affected, it may be too late. However, a simple payment and a call to the creditor can sometimes help remove this from your credit report.
How to Fix Your Credit Score
Now that you are aware of the problems, how do you fix your credit score in order to be able to start a small business?
- Make a plan to pay off your credit cards and debt and schedule it
- Automate all of your bills so payments are made on time from your bank
- If you have too many cards, combine balances into two or three cards or loans
- Use planners, apps, and motivational tools to help you pay off debt
- Take the time to do it properly
It is very simple. It just needs to be followed thoroughly, and time needs to be put into managing your finances properly.
At the end of the day, if you are unable to do it yourself, there is no shame in getting professional help.
If you plan on starting your small business, the sooner you fix your credit score or get help fixing it, the sooner you can start your own business and hopefully become debt free.