Credit can be a lifeline for a small business. Used properly, it can help your business reach new heights. Though banks are loosening the purse strings a little, it’s still very difficult for some businesses to get loans.
Your credit score is a quick snapshot of your credit history that tells lenders if you’re worth taking a chance on. It’s a predictor of your future actions, based on the past. It’s not the only thing that lenders look at, but for traditional bank loans it’s one of the most important.
Your credit score is a very important tool for lenders determining whether you qualify for loans or a line of credit. There are some things every business owner should know about what helps, and what hurts that score, and what you can do to improve your credit worthiness.
Your credit history helps determine your FICO score. Basically, that score summarizes your credit risk and determines the interest rate a lender will charge you for a loan. FICO scores above 760 make you an excellent risk. However, once your score is under 620 it can be hard for you to get a loan, or get a loan with a reasonable interest rate.
So what you do to keep a high score, or better your credit score?
This Black Enterprise Article, Top 5 Mishaps That Kill Your Credit, tells you what NOT to do. You can read the article for more detail, but these things will damage your credit.
- Making late payments
- Carrying too much debt
- Defaulting on a creditor
- Tax liens and judgements
If your credit score is low, there are things you can do to fix it.
This MSN Money article, 9 fast fixes for your credit scores, offers these tips.
- Get a credit card if you don’t have one
- Add an installment loan to the mix
- Pay down your credit cards
- Use your cards lightly
- Check your limits
- Dust off an old card
- Get some goodwill
- Dispute old negatives
- Blitz significant errors
Finally, you can’t take action if you don’t know what’s on your credit report. You can get a free report once a year by federal law. Go to the Federal Trade Commission website to learn more. Your FICO score will not be part of the free credit report. You can request the score from the credit agency, but will have to pay for it.