Originally posted via allbusiness.com https://www.allbusiness.com/tools-to-help-entrepreneurs-build-better-credit-to-access-financing-143870-1.html

Entrepreneur Sharita Humphrey knows firsthand how important it is to build and maintain positive personal credit. Several years ago she hit rock bottom financially, which resulted in her and her two small children being evicted from their apartment. A motel became their home for almost a year. She knew that she had to rebuild her finances and personal credit because two of her goals required both. She was determined to secure a new home for her family and to get a job working for the government.

By building her credit, Humphrey was able to accomplish both of her goals, and her government position gave her the financial stability that she never had before. After a few years of working, she struck out on her own as an entrepreneur, helping others through financial coaching and education. Her business ventures would lead her to be recognized in 2020 as the National Financial Educator of the Year, to become a brand partner and media spokesperson for fintech company Self Financial, and a contributing writer to America’s SBDC, among other accomplishments.

None of this would have happened had she not taken the initiative to work on her credit. “Positive credit profiles require proactive measures, not just reactive ones,” says Humphrey. “When you focus on building your credit, you’re making an investment in your future and the life and dreams you have for your family and yourself.”

If you’re a credit-challenged entrepreneur, you already know how hard it can be to get the financing you need to grow your business. Many small business financing options involve a personal credit check, and the best rates and terms often go to those with good credit. Once your personal credit scores reach 650 or higher, more options open up; higher FICO scores—in the 700s or higher—can help secure excellent rates on small business loans.

Like Humphrey, you can take steps to build stronger credit to unlock financing opportunities for your small business. Here, in alphabetical order, are six tools that may help you do just that.

6 tools to build stronger credit

1. Chime
Credit Builder from Chime is a new kind of credit card designed to help Americans build credit simply and safely without fees or a credit check to enroll. Credit Builder makes everyday purchases like groceries, gas, or monthly subscriptions count toward building a credit score.

Based on a representative study conducted by TransUnion, members who started using Chime Credit Builder in September 2019 observed a median credit score (VantageScore 3.0) increase of 30 points by January 2020. Impact to score may vary, and some users’ scores may not improve.

How it works:

Once a Credit Builder card is activated, you simply add money from your Chime Spending Account to your Credit Builder secured account, and you can charge up to that amount anywhere Visa cards are accepted. At the end of the month, Chime’s Safer Credit Building feature will automatically pay off the balance from the secured account on time and report the credit card payment to the major credit bureaus: TransUnion, Experian, and Equifax.

Unlike other credit cards designed to build or establish credit, Credit Builder does not charge an annual fee or interest or require a large security deposit. Because it’s a charge card, there’s no predetermined spending limit and no reporting of utilization rates.

2. Credit Strong
Credit Strong’s products can help you build credit and savings at the same time. Credit Strong is backed by Austin Capital Bank, a 5-star rated independent community bank and member of the FDIC. Credit Strong offers what are often referred to as “credit builder” loans. You make payments toward a loan in a savings account, and when you’ve paid that loan off you have the money in your account to use as you choose. Payments start at just $15 per month.

Credit Strong analyzed 50,000 Credit Strong credit builder accounts and found that the average account holder increased their FICO Score 8 by more than 25 points within three months of opening a Credit Strong credit builder account. After nine months, the average credit score improved by almost 40 points.

How it works:

After a quick application, Credit Strong instantly gives you a loan and places the funds in an FDIC insured savings account in your name. You won’t be able to access the funds initially since they’re locked to secure the loan. Every month you make a small loan payment that gets reported to the three major credit bureaus, building your credit history each month. To track progress, you’ll get a monthly FICO Score 8 for free. When the loan is repaid in full, the lock is removed from your savings account.

3. Experian Boost
Experian Boost is a free tool that allows consumers to add positive cell phone, internet, cable, utilities, and streaming service payments to their Experian credit report to potentially improve their credit scores instantly. That information can help boost consumers’ FICO scores by giving them “credit” for accounts that aren’t normally part of credit score calculation. Experian Boost even factors in on-time Netflix payments.

According to Experian, more than 60% of consumers who use Experian Boost see their credit scores improve with an average increase of 13 points. While the majority of consumers can benefit from using Experian Boost, the tool is especially useful for people with a limited credit history or subprime credit scores.

How it works:

With your permission, Experian Boost will securely connect to your bank or credit card accounts to identify positive monthly payments. Once you verify the information is correct, the positive payment history is added to your Experian credit report and an updated credit score is shared immediately. The whole process takes about five minutes.

4. Grow Credit
Now more than ever, today’s consumers—particularly Gen Z and millennials—are spending a lot on subscriptions services (Netflix, Hulu, Spotify, Peloton, meal kit deliveries, etc.). Yet, many of them have thin or zero credit profiles. Grow Credit allows consumers to take advantage of their subscriptions to build their credit.

The company reports that since 2018, 81% of Grow users increased their FICO score by an average of 30 points after four months of paying their Grow account on time. The positive credit score boost has helped thousands of consumers benefit from cheaper costs of financing, including car leases/purchases and mortgages.

How it works:

Grow Credit allows you to use popular subscriptions to build your credit for free on all three credit bureau reports through an unsecured virtual MasterCard. For an additional fee, you can also build credit with your cell phone plan.

At the free level, you can use the card to pay for up to $15 in subscriptions per month. (It operates as a charge card/loan for a total of $180 a year.) For a $4.99 monthly fee, you can charge up to $50 in subscription payments per month, and for $9.99 you can charge up to $150 per month.

5. TomoCredit
TomoCredit offers credit cards to consumers who do not have the credit history to get a credit card on their own. Company founder and CEO Kristy Kim built TomoCredit from her own personal frustrations of trying to obtain credit and realizing she couldn’t get approved for anything without a credit score.

How it works:

You do not need to pass a credit check to obtain a Tomo card. Cards are securely linked to your bank account, and payments are automatically withdrawn every seven days. The credit card is a MasterCard which offers 1% back; no interest rate or fees are charged. Payment history is reported to all three major credit bureaus. Non-U.S. citizens are welcome to apply as long as they have a valid SSN or ITIN and a government-issued ID.

6. Self
Self Financial enables consumers to build credit and savings. The company was founded five years ago to address financial inequality by alleviating one of the system’s biggest pain points: accessibility to and affordability of credit. Anyone can use Self, and it’s especially impactful for those who are new to credit or who might not have access to traditional financial products.

How it works:

Self offers two main products that can help build credit. The Self Credit Builder Account allows you to make monthly payments towards building savings. Once you pay it off, you have access to the savings.

The Self Visa Credit Card is a secured credit card that leverages the Self credit builder loan for the deposit. Once you have established a Credit Builder Account and meet certain requirements (which currently include that the last three monthly payments have been made on time toward an account in good standing, and you have at least $100 in savings, among others), you can qualify for the Self Visa Credit Card. You’ll choose how much of your savings account will secure your card, and that will also set your credit limit. There is no hard credit check and you can build your security deposit in installments.

Self recently introduced an unsecured credit limit increase. Unlike other credit cards, where you apply and then may or may not get approved (dinging your credit with a hard inquiry in the process), Self automatically adds unsecured credit to the card if you qualify.

Check and monitor your credit
Your results will vary, of course, depending on the factors impacting your credit scores. And building or rebuilding your credit takes time, so don’t expect overnight results.

Not sure what your credit scores are? Here are over 138 places to check your credit scores for free. It’s wise to check your credit scores with all three major credit bureaus: Equifax, Experian, and TransUnion. The actual credit score each lender will check may vary by bureau. Some use FICO credit scores, while others may use VantageScore credit scores, and there are multiple versions of FICO scores. Some lenders check business credit as well.

So don’t expect that the score you see when you check your credit is the exact score the lender will use. However, checking your credit can help you understand whether your credit scores are helping or hindering your ability to get small business financing. As your scores improve, you may be able to refinance higher-rate debt or get that loan you need to grow or expand your business.