By Ralph Coker
A good credit score usually gets you more favorable credit terms and a lower interest rate. Credit scores fall into five categories: bad credit (below 550), poor credit (550-619), fair credit (620-679), good credit (680-739) and excellent credit (740+). Obviously, and especially as a small business owner in Austin (or anywhere), you want excellent credit.
One calculator indicates the difference between fair and good reduces lifetime credit cost by $83,047 for a typical person. The difference between poor and good is:
$236,451 and between bad and good it’s $392,715. The credit costs for small business owners is probably similar, but businesses also incur lost opportunity costs if they can’t get access to credit to grow their business.
There are three primary ways to improve your credit score. You can begin by making sure the credit bureaus have correct information. Errors are common. All three of the credit bureaus have dispute processes that allow you to verify and correct your report. Also, if there are extenuating circumstances, such as illness, death in the family or divorce, the three credit agencies will allow you to submit a 100-word explanation.
Secondly, get current on payments and stay current. It may take a year to get current and boost your score by one category, but the savings is worth it. About 30 percent of your credit score is determined by how much credit you use of the total you have available. Try to use no more than 15 percent.
And finally, use credit wisely. That means reducing your credit balances. Don’t, however, cancel any of your credit accounts. The length of your credit history is part of your score and older accounts help by up to 15 percent. Using different types of credit accounts makes up about 10 percent of your score. To do that, don’t max out one credit account; instead spread your balance over several accounts.
Improving credit scores is hard work and takes time. Be patient. Don’t change credit accounts to hide your balance. The credit bureaus see that and it hurts your score rather than helping it. Avoid services that claim to have a ‘quick fix’ for a bad credit score. There is no quick fix. Avoid any service that charges an upfront fee to repair your credit. That’s illegal. Don’t try to change your identity to hide your poor credit history. That can get you into legal trouble and make your situation far worse.
Business owners should try to keep the best personal credit score possible. It’s important because lenders will review your personal credit score when deciding whether or not to make a loan to your business.
About The Author:
Ralph Coker, a retired refinery manager, volunteers with the Corpus Christi chapter of SCORE, counselors to small businesses.