Knowing and understanding your personal credit score is key in establishing a solid financial foundation for your small business. Your credit score is a key consideration for investors and lenders, so a bad credit score can make raising capital difficult. If your score needs a boost, don’t despair - there are many ways to improve it.
Here are 7 simple ways to help boost your credit score:
- Make Payments on Time: Payment history is one of the biggest factors in calculating your credit score. If you have been late or missed payments on credit cards or loans, your score will plummet as will your financial reputation. But if you have been short or behind in the past, keeping up with your payments from now on will not only help you pay down your loans, but move your credit reputation into the black.
- Communicate with Lenders: If you have been a good customer in the past and coming up a little short this month, give them a call to see if you can have an extension or make a smaller payment. A lender might even be able to make a “goodwill adjustment” and simply erase that one late charge from your account.
- Keep Your Balances Low: Maxing out your credit or even getting close to your limit can raise some red flags and hurt your credit score. Utilizing only 50% (or less) of your credit limit will not only help your score positively, but will give you an extra financial cushion in case of emergency. It’s also a good idea to pay off as much credit as you can before applying for a loan.
- Don’t Close Down Old Accounts: After paying off a loan or credit card, keep the account open. Closing down old accounts actually hurts your debt-to-credit available ratio. Keep your line of credit open or keep old credit cards and use every few months to make a purchase (and pay it off right away).
- Don’t Apply for More Credit Than You Need (Especially All At Once): Don’t lease a car, sign up for a new credit card or apply for a loan within the same few months. The credit companies views this as a sign of financial trouble. Also, beware of pre approval, as even these can count against your score.
- Avoid Unattractive Credit Sources: These sources usually have high interest rates and in the case of store credit cards, they can be viewed negatively by the credit bureau and can lower your score.
- Review Your Credit Report: It has been reported by some consumer watchdogs that almost 80% of credit reports contain errors, which can cost you and lower your score significantly. Reviewing your credit report regularly not only alerts you to any potential mistakes but also credit fraud as well.