Good credit starts with good handling of your personal credit accounts. Lenders will check your credit score to see if you’ve typically repaid the debts you have, and subsequently, whether they should lend money to you as well.
Your personal credit score is a major factor in determining whether your new business will be approved for a loan or not. If you are a relatively new business, you won’t have much business credit history to show that you will repay your business debts. This is why it is crucial to keep your personal credit score healthy, especially if you’re a new business.
All credit scoring models use these 5 factors to measure your creditworthiness:
- Payment history
- Credit utilization (or the amounts you owe versus how much credit you have available)
- Mix of accounts
- Age of accounts
- Amount of new accounts
These different categories will have differing affects based on the other information in your credit report. The payment history and amounts owed categories decide more than 60% of your score combined.
5 Tips to Improve Your Credit
- Ask For a Credit Increase on Existing Accounts
Although asking for a credit increase might initially be thought of as a bad thing, it can actually have positive effects on your credit score. If you have been making timely payments on a credit card account, asking for a line increase will better your utilization rate because you will now only be using a smaller percentage of the credit that has been extended to you. The easiest way to do this is to call up the customer service line and ask them to raise your credit limit. If you don’t change your spending habits and don’t use any of the extra credit, your credit utilization is immediately reduced. Lenders like to see this percentage kept below 25%. Typically speaking, the lower your utilization rate, the higher your credit score.
- Apply For a New Personal Credit Card, Loan, or Line of Credit
If you’re a responsible credit user, your accounts aren’t maxed out or behind on payments, and you don’t have many accounts, you should consider opening a new account. If you are approved for a new account and make timely payments, this would lower your credit utilization and establish even more of a timely payment history.
- No Credit? Become an Authorized User on Someone Else’s
One of the best ways to build new credit from the ground up is to consider asking a family member (with good credit) if you can become an authorized user on their account. This means that your name is tied to the credit history that occurs on that account, even if you’re not personally using it. Call the card issuer and ask whether the credit account reports authorized users separately to make sure that you will actually benefit (most do), then ask them to add another authorized user to the account. It’s that easy!
- Pay Down Balances, Keep Them Low, Pay On Time
This is really 3 tips in one. If your credit utilization is high and you’re carrying large balances, focus your financial efforts on paying down these balances before you look for any new accounts or credit increases. The fastest way to do this is to get into the habit of making timely payments and handling credit responsibly.
- If You Pay Rent, Ask Your Landlord to Report Your Payment History
Most people don’t know this, but you can actually have your rent reported as a timely payment to be factored into your credit report. All three major credit reporting agencies offer credit scoring models that factor in rent payment history. If you’re paying rent and make timely rent payments, you should ask your landlord to report your positive rental payment history.
These 5 steps are a great way to have your personal credit history booming in a just a few months. The final, and arguably most important tip to improving your credit, is to constantly monitor your personal credit. It’s suggested that you check your credit score at least monthly to make sure all the information listed is correct. There are tons of free credit score sites, and a lot of credit card companies offer free credit checks as a service for having their card.
If you follow these tips, you should start building business creditworthiness and your businesses financial situation should start booming. It can take a little while to get back on track if you’ve had some bad habits in the past, but if you follow these steps, you’ll be back on your feet in no time!