5 Personal Credit Hacks to Boost Your Business Credit Score

Nikki Winston

Good business credit is one of the most important keys to an entrepreneur’s success. Business credit represents a company’s borrowing power and gives entrepreneurs leverage to obtain things beyond their current available cash. For instance, you can use business credit to get company credit cards, favorable rates on business loans, and tradelines with extra time to pay for inventory or supplies. As a result, entrepreneurs who maintain good business credit can reap the benefits of having access to capital needed for necessary investments.

When Business Credit Gets Personal.

New business owners may find it challenging to establish business credit, especially those that have not been in business long enough to meet credit approval guidelines. In most cases, lenders will require more reliable financial information before they decide to approve your credit application. That additional consideration often comes in the form of a personal guarantee. A personal guarantee is where the owners of the company must provide personal financial information including credit reports. If your personal credit is challenged, however, it’ll be more difficult to obtain lines of credit for a business, especially one that’s new or has limited credit history.

A good credit score starts in the 720 range. At this level you have good chances of being approved for many credit cards and favorable loan rates. Scores in the 600 range can be approved but at higher interest rates or denied in some cases. The higher interest rate represents the increased risk of default to the lender based on your credit profile.

If your credit score is not where you want it to be, the good news is you can fix it. Although business credit is different from personal credit, they are very similar in how they’re maintained. Here are five actionable steps you can take now to improve both your business and personal credit.

1. Minimize credit utilization.

A huge part of your credit score is how much money you owe on revolving credit. If you have a credit card with a $5,000 line of credit and a $2,000 balance, then you’re using 40% of your available credit or 40% credit utilization.

What’s the ideal utilization? Some say 30%, others say 50%, but my recommendation is 10% to see the maximum benefits to your credit score. High credit utilization implies that you’re relying too heavily on credit cards for your expenses. Your credit score can fluctuate by 50 points or more depending on how much available credit you have. That’s why it’s important to pay your bills on time. In fact, pay your bills early.

2. Pay your bills early and often.

Many people pay their credit cards by the due date on the statement. However, you can boost your credit score by paying off your credit cards by the “cycle date,” which is typically a few days before the due date.

That is when your credit card company reports your account balance to the credit bureaus. Whatever your statement balance is on this date is what shows up on your credit report for that month. The goal is to minimize the balance reported to the credit bureau, which minimizes your utilization and can add points to your credit score. In turn, this increases your chances of approval for business credit. See how that works? 

3. Resolve unpaid collections.

Having unpaid collections on your credit report is detrimental to your credit score. Collection accounts come from past due balances that creditors believe you won’t pay.  They then sell the account to a third-party collection agency who attempts to recover the balance from you. Resolving a collection account is one of the best things you can do to improve your credit.

If you have collection accounts on your credit report, contact the original creditor first. They may direct you to the collection agency, which may be willing to delete the account in exchange for a payment. Others will report it as “settled” or “paid in full” but won’t delete it. Either way, a paid collection looks much better than an unpaid one when applying for credit. 

4. Diversify your credit profile.

That’s a fancy way to say get different types of credit. Having a variety of installment credit (like mortgages and car payments) with revolving lines (like credit cards) shows lenders that you can handle different credit situations. Credit mix is factored into your credit score but not as much as payment history or credit utilization.

5. Correct credit report inaccuracies.

Check your credit report periodically to make sure that everything is showing up accurately. Things like misspellings of your name, wrong addresses, or incorrect balances can have adverse impacts on your credit score. Once you find an error you can dispute it with all three major credit reporting bureaus: Equifax, Experian, and TransUnion. If information is revised on one of the reports, you can share that update with the other credit reporting agencies so that they have supporting documents to support and possibly expedite your dispute.

You can also obtain a free credit report each year from annualcreditreport.com and request them directly from the credit bureaus. Each option gives you real-time access to your credit report.

Establishing good business and personal credit can seem daunting at first, but with these steps, you’ll be on your way to great credit.

About the author.

Nikki Winston is a working mom, CPA, and host of The WERKin’ Mommas podcast where she shares business tips, career advice, and the frolics & frustrations of being a Momma. Connect with her on social media @NikkWinstonCPA

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