[This article was written by Steven.]
Having a healthy credit score is paramount when running a business. For entrepreneurs, this often means focusing on both personal and business credit.
Boosting your credit score will help you improve your options for securing loans and investors. Here are some easy credit hacks that will help build your credit score and set your business up for success.
Keep Your Credit Ratio Under 15%
Start by setting a goal to keep your credit ratio under 15%. That means of the credit you’re approved for, you want to use under 15% of that amount. For example, if you had a $10,000 credit limit on your credit card, it behooves you to have a balance under $1,500 when having your credit score checked.
There are a few ways to decrease your credit ratio. The ideal option is to curb your spending and pay down your debts to reach the 15% ratio. Another short-term option is to have your credit expanded or apply for a new line of credit. However, having those available funds isn’t the best option for those who struggle with spending.
Use Credit for Expenses
While keeping your credit ratio low is crucial for a stronger credit score, you shouldn’t avoid using your credit entirely. Having no credit is just as damaging as having bad credit when trying to secure a loan.
Use credit to pay for the various expenses in your business. Don’t hesitate to use a credit card for small expenses that you know you can pay off relatively quickly. Having a company credit card with a rewards program can help offset some of the costs of running a business while boosting your score. Paying it off each month, however, is vital.
Dispute Errors and Negative Items
Contrary to popular belief, the credit companies mess up too. While many systems are automated, it just takes the click of the wrong button by an employee to report an error that could impact your credit.
Furthermore, outstanding issues that have been dealt with might still show up on your credit report. The onus is on the borrower to request the deletion of negative accounts. Take a look at your credit report and use a service, such as DisputeBee, to have negative accounts removed and errors corrected. This will instantly improve your credit score.
Use Credit with Vendors
Your business will require suppliers and vendors to fuel your operations. Everything from agreements with office supply companies to transport operators will play into how your business runs. If you set these relationships up correctly, they can also boost your credit score.
Set up credit accounts with your suppliers so that your purchases and payments contribute to your credit report. It’s important to note that not all suppliers will report positive payments. However, you can add references to your business credit report to ensure that your positive payments are included in reports.
Pay Debts on Time
The best way to hack your credit card score is always to pay your debts on time, even if that’s just the minimum payment. Better yet, pay it early for even better results.
To be able to pay your debts on time, it should be a policy never to borrow more than you can pay. Even if times are tough, you should try to pay more than the minimum payment to cut back on interest.
Keep Personal and Business Credit Separate
As a business owner, it’s essential to keep your personal and business assets and expenses separate. Put protective measures in place to keep your business credit score separate from your personal credit score by setting up the right business structure and keeping banking separate.
To do this, you should:
- Set up an incorporated business rather than a sole proprietorship.
- Have a separate business banking account.
- Register for an EIN or DUNS under the legal business name.
- Keep accurate records of everything in case you need to file a dispute.
Not only will this help you improve your business credit score while protecting your personal credit score, but it also helps protect you in the event of an audit.
Audit Your Reports
While the term “audit” invokes a negative connotation, auditing your own information is an effective way to reduce the risk of external audits. One audit you should conduct is a regular check of your credit report. Otherwise, it’s all too easy to experience a decline and not realize until you need an excellent credit score to invest further in your business.
There’s a delicate balance between checking your credit score too much and not enough. If you check too frequently, it indicates that you’re looking to borrow money, which can negatively skew your credit score. Check your score quarterly or semi-annually. This practice will give you ample opportunity to combat negative charges and move forward.
Keep Accounts Open
It’s natural to think that after paying down a line of credit or credit card, that you should reduce the available credit. However, while this practice seems wise, it can negatively impact your credit score. If you end up requiring more credit, you will also need to reapply.
Instead, keep the credit accounts open and unused. The downside is that people who struggle with spending will have to face the temptation of available credit. The positive side of this approach is that it further improves your credit ratio. In this scenario, the best thing to do to improve your credit score is nothing at all.
Choose the Right Lenders
Being selective in your lenders is essential for improving your credit score. Work with reputable lending agencies and avoid short-term, high-interest loans. As a borrower, you have the right to shop around compare lenders before committing to a loan.
It’s also essential that you know your protective rights as a borrower, as to not end up in a negative credit situation.
Bad credit isn’t something that gets repaired overnight. However, taking small steps toward improving your credit score will yield big results over time. Start by learning your credit score and getting a report about what’s negatively impacting it. From there, take small steps toward improvement through disputes and smart spending.
Steven is an IT consultant who helps digital businesses reach their full online potential. Steven is passionate about programming and IT consulting. His current focus is helping SaaS businesses create a better world for our kids. He frequently writes about the latest advancements in the digital and tech industry.