If you are thinking about starting or growing a business and want to know how you can increase your credit rating, then read this article. In it I will discuss how you can begin to raise your credit score and how doing so can save you hundreds of dollars each year in interest charges. In particular we'll discuss the effect that closing business accounts can have, as well as why having just one account is better than having multiple ones.
The first thing that you should know is that there are two ways that you can get a copy of your credit report. You can get it for free from one of the three major credit reporting agencies (Equifax, Experian, or TransUnion). Alternatively you can pay a small fee to get a more detailed credit report. In most cases the fee that you pay for getting a report is worth the cost. Once you receive your credit report, you should go over it with a fine tooth comb to ensure that everything on it is correct.
If you notice anything on your credit report that does not belong there is an easy way to remedy the situation. Contact the credit bureaus within 60 days of learning of the error and request a credit dispute. This is how the credit bureau determines whether the information is accurate. You can either send them a letter referencing the mistake or initiate the dispute process by phone.
Close all business accounts that are not strictly necessary. As you probably already know, closing unused accounts can significantly decrease your credit score. Of course there are good reasons for keeping some non-essential accounts open. For example you may have been opening them up to have a way to collect payments from a customer if they were unable to pay you cash. Another reason businesses may keep an account open is to have a collection agency on hand in case a customer falls behind on a bill and is unable to catch up. Regardless, of the reason why you should close the account the short-term impact is significant and will have a major impact on your credit score.
Review your credit report to make sure all the information on it is accurate. The credit bureau verifies all the information on your credit report and the information is stored in their computer system. The computer system will not accept data on accounts that are not enrolled. This includes accounts that are paid but are not marked as paid on the credit report. By law all these items should be marked on your credit report as “paid”, even though they are not being paid.
Keep your credit cards in good standing. Many small business owners are surprised to . . . . . . learn how much effect their credit cards actually have on their credit score. For this reason it is important to keep your credit cards at a respectable level of debt to credit ratio. Ideally you want to have around 35% of your credit limit on each card. This will ensure your business does not have problems paying back credit card debt if they get out of hand.
Get copies of your credit report and score from all three agencies. You should look at your credit score and then look at any inaccuracies that may exist with your credit report. By disputing any items on your credit report that do not reflect your accurate credit history you can help raise your credit score.
Use credit wisely. If you have small business credit, make sure you use it prudently. Use it to purchase items for your business when you need them. If you don't use credit wisely your business could end up in great financial trouble. This is why so many small businesses fail because the owner did not take the time to establish credit early on.