Your personal credit score can affect your ability to get auto loans, mortgages, and credit cards. But did you know it can also play a part in your search for business financing? Many business lenders use an applicant’s personal credit score to determine eligibility, rates, and terms—even if the funding is to be used for business.
Improving your personal credit can give you access to more financing options as well as lower rates and more flexible repayment terms. The good news is that most of the habits you use to boost your personal credit score apply to your business credit score as well. Just as you display responsible financial habits by living within your means personally, you need to do the same with your business.
There are a number of things you can do to improve your credit. Some of them, like establishing a positive repayment history, can take several months. But what if you need an immediate boost?
It’s nearly impossible to improve your credit in a day, or even over one week—but there are steps you can take to help you increase your score in weeks or months.
1. Spot and fix errors
Your personal credit report should tell the story of your financial activity, specifically as it relates to how you manage debt and credit accounts. But, sometimes errors or fraud can ruin your credit through no fault of your own. If errors and fraudulent activity make it onto your report, your credit score could suffer.
Each of the top credit reporting agencies—Experian, Equifax, and TransUnion—are required by law to give consumers a free credit report each year. To request a copy of your free credit report from all three credit reporting agencies, visit www.annualcreditreport.com. On the website you can also find information on how to call in or mail your request.
Once you get your report, review it to make sure all your information is correct and up to date. If you find errors, you can file a dispute to have them corrected. Keep in mind that each credit reporting agency collects its own information, so you’ll need to contact each individual agency to discuss errors on your reports. (Fixing an error at one credit bureau won’t fix the error at all three.)
Checking your business credit score: You are probably wondering how to check a business credit score so you can see what your potential business partners are seeing. Unfortunately checking business credit scores is not as simple as personal credit scores. That’s because unlike personal credit scores, there are no free websites to get a business credit check. Despite the fact it’s not free, it’s worth it to request a report to make sure there is no incorrect information. Checking a business credit score can range in price from $50 to $300.
2. Pay down revolving credit card debt
Revolving credit is credit that “revolves” or gets replaced as you repay it. Revolving credit accounts (credit cards) don’t close once the balance is paid in full. Instead, you have the flexibility of reusing the credit as long as the account is open.
A major factor that can directly impact your credit score as well as your business credit score is the amount of credit you have versus the amount of credit you use—specifically on revolving credit card accounts. This number is often referred to as your credit utilization and accounts for about 30% of your FICO® Score.
How revolving credit utilization works
If you have a credit card with a credit limit of $10,000 and you spend $7,000, you’re left with $3,000 in available credit on the account. If you make a $5,000 payment, your balance will drop to $2,000, leaving you with $8,000 in available credit.
You can figure out your individual card utilization by dividing your current card balance by the card limit:
Total credit card balances ÷ total credit limits = credit utilization