As an entrepreneur, your credit score is as valuable to you as how many goods you’re able to sell or services you’re able to provide. The reason is simple: your credit score tells investors and lenders whether you’re trustworthy and responsible with money. Should you ever need help financing a large order or need extra cash to expand your team, a weak credit score may very well prevent you from getting the capital you need.
For entrepreneurs, both gross profit margins and credit scores decide the longevity of their businesses. Know your credit could be improved? Here are some steps you can take to fix your credit score.
Credit Repair Begins With Automatic Payments
If you need to fix your credit, the first thing you need to do is set up your bills for automatic payments. 35% of your credit score is made up of payment history. It is the largest contributing factor to your credit report and score. Therefore, the most important thing you can do is ensure all monthly payments are made on time.
More Ways to Fix Your Credit
While on-time payments prevent your score from getting any worse, there are also a few things you can do proactively to help repair your credit. If done successfully, you could start to see your credit score quickly improve.
Improve Your Credit Utilization
Credit utilization makes up 30% of your credit score. It’s the second largest contributing factor coming just under payment history. Credit utilization takes into account how much money you owe credit companies versus how much you have available to you. If your balances are too high, both FICO and Vantage (the two biggest credit score companies) will think you’re overspending. If this is the case, they’ll consider you a sinking ship and drop your score.
To improve your credit utilization, there are a few things you need to do:
- Pay down your debts. The more credit you have available to you, the better. The lower the balance, the more you could spend if you had to. Lenders and credit companies like this.
- Request a higher credit limit. For the same reason as above, this increases the amount of credit you have available to you, and improves your credit utilization ratio.
- Refinance. Use a personal loan to pay off your credit card debt and there will be a few different benefits. For starters, you’ll likely have a lower interest rate, which means more of your monthly payments will go toward paying off the principal — meaning you’ll get out of debt faster. Secondly, you’ll only have to stay on top of one monthly payment (which you should set up on an automatic payment schedule). Keep the cards open, and you’ll have more credit available to you. Many people think that the temptation of an empty credit card is too much and get rid of it. Don’t do this. Keep it open for your credit score. Put the cards in an envelope and hide them from yourself if you have to.
- Get another credit card. Another credit card increases the amount of credit that is available to you. This means a better credit utilization ratio.
- Use your credit cards, but keep the balances below 30% each month before you pay them off. Credit cards need to show activity so they’re not closed. Credit scoring companies also like to see that credit is being utilized or used. As the old saying goes, if you don’t use it, you lose it.
Become an Authorized User Where You Can
Authorized users on existing accounts get all of the history that is associated with that account. For this reason, only become an authorized user on an account where there has never been a missed payment and the credit utilization has stayed at or below 30%. The older the account the better (two years old at least). At the moment, there are companies that sell access to strong accounts for only a few hundred bucks. It doesn’t help that much if your credit score is poor, but if it’s good you’ll see a pretty sizeable jump.
Address Credit Errors
Credit errors on credit reports happen more often than you’d think, and unfortunately, these negative entries hurt your credit score. Take a look at all three of your credit reports (you can get a free copy of each credit report once a year at www.annualcreditreport.com). Comb through them. If you see something that never happened, it’s time to engage in some credit disputes.
Don’t call or email. You need to do everything through snail mail. Write both the credit bureau and the organization that provided the information to the bureau. Tell them what you’re disputing, why you’re disputing it, and ask them to correct their error.
Don’t Be Afraid to Contact Professionals
Your credit score impacts both your personal life and the future of your business. For a free consultation on additional steps you can take to improve your credit score, sign up for a free consultation at Ovation Credit.