How To Improve Your Business Credit Score
Your business credit score is important. Don't believe me? Ask any business owner who tried to get a business loan that had poor credit. A credit score of 700 or better is needed to be approved for business loans. Thus, if you do not have this credit score, you should make your goal to improve your credit, and start working towards that now!
Why? Your credit score should be taken seriously, as to lenders it is your financial snapshot, it shows your financial health at a given moment. So if your score is not where you want it to be, you better work to improve it.
How do you improve your business credit score?
1. Know what it is:
If your credit is poor, or your score needs improving the first thing you should do is figure out what EXACTLY needs to be better. Analyze your current credit reports from all three bureaus: Experian, TransUnion and Equifax. Look at your reports and from them determine which accounts you need to work on, and how. You have to look at the reports to know what was reported wrong, what you can improve on, and where to start. Once you have identified the errors and inaccuracies, you can go through the process of repairing the damage you've done. Sometimes it is not just you, but it still reflects on your credit report, so whether you inflicted the damage or the damage done by outside parties from a messy divorce or identity-theft, if you don't look at your credit report you won't know where to start.
Look for the errors most easily fixed to start with. These would be things like accounts from others (identity theft, ex-wife, etc.), late payments that were actually paid on time, debts paid off that are still listed as outstanding, and old debts or negatives that have exceeded the seven-year mandate of the Fair Credit reporting Act. All of these can be corrected in a matter of a few weeks to a couple of months, and correcting these inaccuracies will go a long way toward improving the credit score.So, get your credit report, look for inaccuracies, and get to work fixing them.
2. Give Yourself Time:
If you know your credit is poor and you need a loan for your business, plan ahead, don't think that you can clean it up in a matter of days, or even weeks. You should work to clean up your credit months (as in 6-18 or more) before you apply for a loan. You want to make sure you have ZERO late payments, and that you are aware of what accounts need to be taken care of, and actually have time to take care of them.
Another thing that time does is help your credit by giving you extra credit history. One tip is do not close unused credit accounts. Your credit history is an important factor in your credit score. So, even if your card, or line of credit is at a zero balance, don't close these older accounts. If you do they may not show up on your credit report, and this makes you appear as a new borrower which is not necessarily good. Keep the old accounts open no matter what the interest rates are but keep the balances to a minimum. For example, if it is a credit card with an interest rate of 12.9% you would not want to have a big balance as the interest might kill you, but leaving 20-100 dollars shows a current thread of credit.
3. Don't Bite Off More Than You Can Chew:
One huge step in repairing your credit is not getting any more negatives on your report. If you are struggling to make current payments there are things you can do, but you need to know you budget, personality, and energy limits. Set payments that you can afford. If you are working to pay down credit cards with high debt start with minimums, then later add in fixed payments on auto loans, mortgage or cell phone service plans and the like. Once you can comfortably do this, double the amount you pay, and do that until you can comfortably do it, then double that, and keep the process going. Gradual is good.
Another great way to improve your business credit score is to spread payments out over a few cards. This may be a pain for you, but it means that you can change your debt-to-credit ratio, which can lead to an improved credit score. To do this, transfer balances from cards that are nearly maxed out to others with lower balances. Establish credit card balances in a 20-30% range which should increase your debt ratio and score. This works because while you won't be saving money, unless you transfer to a card with a lower interest rate, you'll make increased payments on some cards and reduced payments on others.
Last but not least, a great way to keep your score from getting worse, which means improving it is to learn how to communicate with creditors. They want to be paid, and are willing to work with you if you show you will pay. So, as soon as you realize that you cannot make your payments, contact your creditors. Recognize that if your past history with them has been good, they will value you and be more willing to work with you. Do not wait until your account is referred to a collection agency to contact your creditor.
Your best option when you are struggling to make ends meet is to call your creditor and tell them the situation, then ask them to extend the deadline for payment and to change the payments amount to something you can afford. While this means a longer time to pay off, and more interest, and you can probably expect to pay a "carrying charge" or higher interest on overdue accounts, you don't ruin your credit in the process.
The sooner you act, the better terms you are likely to get, and the more flexible the creditor will be with you.
Improving your credit is important, so take these steps to get your business credit score where it should be.