Starting or growing a small business can be both an exciting and challenging endeavor, especially when it comes to securing the financial resources necessary to bring your vision to life. For small business owners in Iowa, understanding the role of credit scores in unlocking access to financing can help you cultivate practices that support capital growth and increased access to money as you grow.
Whether you’re navigating loans, credit lines, or other funding tools, your credit score can play a significant role in determining the opportunities available to you. In this article, we’ll explore how credit scores impact small business growth in Iowa, what factors contribute to a strong score, and practical steps you can take to improve your financial standing. Let’s dive in and uncover how to set your business on the path to success.
What is the average credit score in Iowa?
Do you know the average credit score in the US and how that compares with the average credit score in Iowa? Nationally, the average credit score is 705, but in Iowa, the average consumer credit score comes in at 730, according to Experian, one of the three credit reporting bureaus in the US.
The difference between a credit score of 705 and 730 may seem minor at first glance, but it can have a significant impact when it comes to accessing financing for your small business. With a score of 705—just above the “good” credit range—you may qualify for loans or credit lines, but you might face higher interest rates or more stringent terms. On the other hand, a score of 730, solidly within the “very good” range, can position you for lower interest rates, more favorable repayment terms, and a higher likelihood of loan approval. Over time, the cost savings associated with better loan terms can free up valuable capital that can be reinvested into your business for growth and expansion. Even a small improvement in your credit score can lead to substantial financial benefits for your business.
Take steps today to manage your credit score. Read the guide to improving your credit with credit repair.
What factors impact your credit score?
Several factors contribute to your credit score, and understanding them can help you make informed financial decisions to improve or maintain a strong rating. The most significant factor is your payment history, which accounts for about 35% of your score. Consistently making on-time payments is essential to building and keeping a good credit score. Another major factor is your credit utilization rate, which measures how much of your available credit you’re using; keeping this rate below 30% is generally recommended.
The length of your credit history also plays a role, as longer credit histories demonstrate a track record of responsible borrowing and repayment. Additionally, the types of credit you use—such as a mix of installment loans and revolving credit—can slightly influence your score. Lastly, recent credit inquiries and new credit accounts can temporarily lower your score. Too many hard inquiries in a short period may signal financial instability to lenders. By carefully managing these elements, you can improve your creditworthiness and position your business for success.
Where can I get information on my credit score?
Where to Access Your Credit Score Information
There are several ways to obtain information about your credit score and credit report. One of the most reliable methods is through the official federal government website, AnnualCreditReport.com. This service allows you to access a free credit report from each of the three major credit reporting agencies—Equifax, Experian, and TransUnion—once every 12 months. Reviewing these reports can help you better understand your credit standing and identify any errors or fraudulent activity.
Additionally, many banks and credit card companies now offer free credit score monitoring tools as part of their services. These tools often provide a snapshot of your current score and insights into factors influencing it. Keep in mind that while these services can be helpful, the scores they provide may not always match the scores used by lenders. Carefully reviewing your credit information from multiple sources ensures you have a comprehensive understanding of your credit health.
Clean Up Your Credit if There is Incorrect Information
If you discover inaccurate information on your credit report, taking prompt action to address it is crucial. You can do the work to correct your credit report yourself, or you can hire a service to work on your behalf.
In either case, you’ll review your credit report carefully to pinpoint specific inaccuracies, such as incorrect account details, outdated information, or accounts that don’t belong to you. Then, collect supporting documentation to dispute the errors. This might include bank statements, payment receipts, or any correspondence that proves the information in question is incorrect.
Contact the credit bureau(s) reporting the incorrect information—Equifax, Experian, or TransUnion. Most bureaus allow disputes to be filed online, by mail, or by phone. Clearly explain the error, provide documentation, and request an investigation.
Another way of handling a dispute is to reach out to the creditor or organization that reported the information. Inform them of the error, provide evidence, and ask them to update their documentation with the credit bureau. In some instances, if you were out of compliance due to an error or omission, you or an advocate can resolve it with the creditor
After filing a dispute, follow up with the credit bureau and the furnisher to check the status of your claim. The bureau typically has 30 days to investigate and respond to your dispute. Once the investigation is complete, the credit bureau will provide a report detailing their findings. If the error is corrected, your credit report will be updated accordingly. If not, you can escalate your dispute or add a personal statement to your report.
Take steps to improve your credit worthiness over time
You’ve heard the common saying, “It’s easy to get a loan if you can prove you don’t need it.” The point of the saying is that lenders really do want to minimize their risk. If you borrow ten dollars and can regularly repay a $100 loan, it’s an easy choice for the lender. For borrowers, the more we can prove our ability to repay, the more money lenders are willing to extend. That’s what credit builder borrowing is all about.
Taking loans today, when managed responsibly, can help improve access to capital over time by building a positive credit history. When you borrow money and make timely payments, it demonstrates your ability to manage debt effectively, which is a key factor in determining your credit score. A higher credit score makes you a more attractive borrower to lenders, increasing your chances of being approved for larger loans or credit in the future. Additionally, establishing a reliable borrowing and repayment history can lead to better interest rates and loan terms, ultimately saving you money while granting you access to more financial opportunities.
In traditional parlance, credit builder loans are small, cash secured loans that a borrower can take when they have no credit history. You take out a $500 loan, the bank or credit union holds the money, and you make monthly payments. When the total amount of the loan is paid, you receive the $500, and, in the meantime, you’ve proven your ability to pay. The bank can then issue a credit card with several thousand dollars of available credit, or maybe even a larger loan. This can be a great way for someone with no credit history to establish a positive track record and build their credit profile.
Businesses can do the same – finance equipment when they have the cash to pay upfront, finance a company vehicle, take out a fuel card, set up a business credit card that reports to Experian Business, Dun & Bradstreet, and Equifax Business, the three business credit reporting agencies.
No matter where you are in the process of building access to capital, Commercial Capital Midwest can help you find the resources to take the next step in your business journey.
It’s important to note that taking on debt in any form should not be taken lightly. Before considering a credit builder loan, it’s essential to assess your financial situation and ensure that you have the means to make regular payments. Defaulting on payments can severely damage your credit score and hinder your ability to access future loans or credit.
It’s also crucial to choose reputable lenders and carefully review all terms and conditions before committing to any borrowing arrangement. That’s why we vet lending options and detail the choices you have in the lending market.
Let’s connect! Drop us a message and see what Commercial Capital Midwest can do for you.