How to Kick Up Your Credit Score
No matter how large or small your business is, it's important to have a great credit score -- both for you and your business. Good credit scores are like money in the bank, only better, because they give you additional spending power.
The score you need depends on your specific situation. The maximum is 850, but anything close to 800 is outstanding. 750 and up is enough to satisfy most lenders. A good, low-interest mortgage requires about 730. A score under 700 is still acceptable, but will prompt many landlords and lenders to look carefully before granting credit.
Here are some tips for raising your personal or business credit score — and keeping it high.
Make Timely Payments
Your payment history counts for a third (or more) of your credit score. So, the most essential step in boosting your credit score is to pay your bills on time. Late payments wave a big red flag on credit reports and remain there for many years. Work to avoid them at all costs.
One strategy: On whatever calendar you use regularly, set up reminders of every payment you owe. If you enjoy enough cash flow, use your banks’ systems to set up regular, automatic payments.
If necessary, borrow “off the books” from friends or family and use the money to stay current with all your “on the books” accounts. If you’re still short, remember that your credit score increases when you make timely payments on all of your accounts, but it decreases when you pay late on any one of your accounts.
Ride Herd on Your Credit Score
Under the law, you’re entitled to a free copy of your credit report from each of the three main credit reporting agencies — Equifax, Experian, and TransUnion — once a year. You’re also entitled to a look at your credit file every time you’re turned down for a loan.
Request these reports regularly. Study them for credit weaknesses, such as big balances, late payments, too many new credit accounts, or too many inquiries about your credit from potential lenders. In particular, look for errors in the amounts you owe and in your repayment history. Mistakes in these areas almost always lower rather than raise your credit score.
Whenever you find an error, immediately dispute it with the credit bureau that got it wrong. Pursue each error with all three, if necessary.
If your report contains a score-reducing problem that’s factually correct, bypass the credit bureau(s) and go directly to the creditor who reported it. Try to negotiate a reduced balance, a stretched-out repayment schedule, or even a flat-out removal of the bad rap from your record (in exchange for immediate payment in full).
Consolidate Your Debt
Many debtors feel better owing just a little to many different creditors. But this approach actually hurts your credit score. It’s smarter to owe higher balances to fewer lenders.
You can accomplish this by paying off several balances with money borrowed from one source, such as a credit card, an equity line of credit, or even a business-based credit facility.
Note that lenders can see when a borrower simply moves money around and doesn’t pay down balances. A good strategy for raising your credit score is to consolidate your debt and then concentrate on reducing your total balance.
Match Spending to Income
That’s easier said than done in some circumstances, but living — and running your business — within your means is guaranteed to build and maintain a high credit score. Sure, sometimes it’s worthwhile to spend more than you take in. But doing this too often or too long inevitably erodes your creditworthiness.
Increasing your credit score is a form of financial fitness. Just as with physical exercise, you won’t see significant improvement overnight. The most effective strategy for beefing up a weak credit score is to keep working your credit improvement program.
Robert Moskowitz is a business writer for Intuit and is passionate about solving small business problems.