Proven Ways for Improving your Personal and Business Credit Score
July 7th 2019 at 9:21am Published by firstdownadmin
The American Dream isn’t as lucrative as it was made to be. Behind the smiling faces, the mortgaged home, the chicken in the pot and the car in the garage, we have tons of credit and debt. You might already know this, but the American financial infrastructure is heavily dependent on credit and debt.
Credit allows consumers within the market to buy and finance purchases that they would not be able to pay for otherwise. Credit is basically what allows you to get funding for your car, for your home and for other expenses that you have planned, even if you don’t happen to have cash on you at the time being.
So in this credit-based economy, where credit happens to dictate everything around us, you will find it hard to meet your daily lifestyle or finance your next purchases, if you aren’t able to maintain a strong credit rating. Your credit score is what determines your ability to pay back debt, and that is exactly what gives funders and other sellers the ability to trust you.
If the above-mentioned situation sounds grim, then don’t get dejected all of a sudden because you can control your credit score in ways more than one. Your credit score is directly under your control and you can surely dictate it to work the way you want for yourself.
While some credit bureaus have their distinct computations and algorithms for calculating your credit score, your financial decisions and your financial stability are still primarily influencing the result of those algorithms.
There are numerous techniques you can follow to improve your personal and business credit score. Since we know that your business is a separate legal entity, it will surely have a different credit rating to yours. Your credit score will be influenced by the purchase and financial decisions you make for yourself, but your business’s credit rating will be influenced by the funding and the repayment schedules you follow for your business.
You must focus on the credit rating for your business because that is how you will be securing funding and financial help in the future. Cash is an important resource for every business, and so it must be for your brand as well. The best way to make sure that your business has the right reserves when it comes to cash is to go out into the market for an external funding or small business funding. To qualify for such a funding, your credit score must be good at all times.
Only if your credit score is good would you be able to qualify for funding and then get a decent rate for repayment on them. The rate matters as it helps determine the interest you will have to pay back on the funding you borrow from the bank. You shouldn’t neglect the importance of your business credit score as the liquidity of your business will at some point of time be heavily dependent on external help.
How Are Credit Scores Calculated?
Equifax, Experian, and TransUnion happen to be the three major credit bureaus located in the United States. All three of these bureaus, rank your credit score in a tally that ranges from 300 points to 850 points. If you are looking for funding option for your business, the funders would preferably want a credit rating that is upwards of 670 points. There is no reason as to why the barrier is placed at 670 points, but we do know that most businesses consider anything more than that a good score.
Each of the business credit bureaus we have mentioned above, rely on different models when it comes to computing credit scores. Creditors and funders can go to a credit bureau of their choice. This does suggest that you can score differently on all three of these credit bureaus. The credit score you have for Equifax can be different than the credit score you have at Experian, suggesting that all of these credit bureaus have different reporting patterns in place.
While there might be some diversity, experts believe that your scores would be within the same range for all of the credit bureaus. There’s also a set gold standard as to what credit bureaus follow or consider for deciding the credit rating.
A typical credit score includes fixed percentages of the following:
- 35 percent of the credit score is based on the payment history that you have shown while paying back funding, credit cards, and other debts.
- 30 percent of the credit score is based on how you use the credit that is given to you. Do you use it in full, or not.
- 15 percent of the credit history is based on how long you’ve been dealing with credit. If you’ve been dealing with credit for a short period, then your credit score might not be that lucrative.
- 10 percent of your credit score will be dependent on how active you are with credit. Do you apply for new funding or not.
- 10 percent of your credit history is based on the diversity of the credit you opt for. Is the credit you opt for diverse enough, or is it fixated on certain heads?
As you can see through the list above, your credit score is computed through different means. While payment history is by far the biggest determinant of your credit score, there are other factors as well such as the length of your credit and the level of your activity.
In short, your credit score is dictated by how willing you have been to get credit funding in the past few years and how have you been with repaying these funding. You should have records of funding during your history, and also should have the relevant record in paying back funding within the payment schedule that is required for them.
Ways to Improve Business Credit Score
We first start by discussing the ways you can follow to improve your business credit score:
Check Your Credit Report
This is the first step you should take. You must check your credit report before you proceed with the redemption process. You can easily collect your credit report from any of the major credit reporting agencies that you’re most comfortable working with; Experian or Equifax could be possible options.
These reports don’t come free of cost, which is why you will have to pay a small amount to get your hands on them. Regardless of the costs, this is the first step you need to take towards ensuring a better credit score.
Once you know what your credit score is you can take immediate measures listed below to make sure that you can improve it over time. You’ll also know the disputable items within the report and how you can address those factors with the due attention they require.
If you have a credit card account that is negatively affecting your report, you can take the correct measures to amend that mistake and work towards improving it in the long run.
Pay Your Bills on Time
This is perhaps one of the easiest ways to help correct your business’s credit score. You must have many bills coming your way as part of the operational expenses that you undergo for your business. These bills could be for electricity, water and gas, and other payables. Part of your credit rating can be affected if you don’t pay due heed to these bills and don’t pay them in time.
Irregularity in paying your bills can have a major impact on your credit score, which is why you need to start by paying your bills on the right time.
Decrease Your Credit Utilization Ratio
As we have mentioned above, your credit utilization ratio can impact your credit score as well. The level of credit utilized relative to the level of credit available is a good indication of a business’s reliance on credit and their ability to pay it back.
You should preferably keep the above-mentioned ratio to less than 15 percent for the best results. Here are a few suggestions on how to keep your credit utilization ratio low.
Pay Off Balances
This is necessary for maintaining a sufficient ratio. You should pay off balances that are currently hindering your small business from success. You should make sure that you get your balances as down as possible for you.
Increase Credit Limit
This will perhaps aid your credit utilization option more than any other step. You can get in talks with your bank to improve the credit limit on your card. This is necessary; because once the limit is increased you will have more credit available to you, which you won’t be utilizing.
Credit reporting agencies take that into perspective because this shows that you aren’t specifically reliant on credit. Additionally, an increase in your credit limit will directly impact the credit utilization ratio.
Decrease Card Spending
Continuing from the point we mentioned above, you can improve your credit utilization ratio through your credit card in two ways. You can either increase the limit given to you by the bank, which we have talked about above, or you can decrease the credit card spending you partake in regularly.
While both these measures can be carried out separately, doing both of them together will significantly impact your credit utilization ratio. The boost will eventually translate to a better credit score.
Open New Line of Credit
This might sound counterintuitive to you right now, but we believe that opening a new line of credit can significantly enhance your credit utilization ratio. Even if you don’t require the credit, make sure that it is there and you’re not spending enough of it. Get a small business funding to improve your credit utilization ratio.
Establish Positive Credit Accounts with Suppliers
Many businesses fail to spot the opportunity that they have to improve their credit score by recording credit dealings with suppliers efficiently. By establishing a credit account with your supplier, you will be able to record all of the transactions that you have with them. This will include positive dealings for your business and help you improve your credit score.
If you think that a negative event has mistakenly been posted in your credit history, then you can work with your credit report agency and credit card Company to remove the erroneous feedback from your files.
You should make sure that all that being reported on your credit file is a true representation of your credit and doesn’t have any wrong information. Your credit file should only include true experiences that happened and not wrong experiences that have mistakenly be added to the file.
Even the addition of one bad experience can damage your credit history. If you want to safeguard your credit history, you should make sure that you keep checking what is reported inside and make actual adjustments where required.
Add Positive Payment Experiences
Improving your credit history is something that lies on your shoulders, which is why you should take measures to improve it. If you want to report your credit history, you should make sure that you do it in the right manner by reporting positive experiences as well.
Most vendors and suppliers do not share positive payment experiences with credit reporting agencies, which is why you will have to do the hassle of manually updating your company’s credit by going to the credit reporting agency’s website. By adding positive payment experiences to your history you ensure that your credit history has a good score and that you can assure people of your willingness and ability to payback.
Take Credit with Easy Payback Options
To further improve your credit history, in the long run, you should opt for credit options that come with an easy payback schedule. Repayment is often one of the major culprits when it comes to poor credit history. A funding with a stringent repayment schedule can be tough to pay back, which is why the best way forward is to only go for funding that offer convenient repayment options.
Small business fundings from prominent online vendors are the rave nowadays because of how convenient their payback features are. You can also benefit from these convenient payback features to enhance your credit score and get a feasible repayment option. This is the perfect way to kill two birds with one stone easily.
Improving Personal Credit Rating
Having discussed ways you can follow to improve your business credit rating; we now discuss the ways you should follow for improving your credit rating. You should take both your business and personal credit rating alongside and maintain a good credit score at all times.
Follow these tips below for improving your credit score:
Keep Unused Credit Cards Open
You might be tempted into closing a credit card or a credit account if you haven’t used it since some time. The burden of carrying a card and paying the fees if you aren’t using it does not sound economically viable, which is why you must be tempted into closing the card down.
However, we don’t believe that this is a good step to take for your credit rating. Your credit rating is calculated through many factors including credit utilization. To put it right, credit utilization plays an important role in deciding the figure for your credit score. Almost 1/3rd of your credit score is dependent on your credit utilization ratio. Your credit utilization should at least be 15 percent. This means that you should only be utilizing 15 percent of the credit available to you.
Now, by canceling unused credit cards you are reducing your credit utilization ratio with your own hands. You need to realize that your credit utilization ratio is one of your best chances of improving your credit score, and you’re doing no good to yourself by reducing credit limits or credit cards.
Be a Good Tenant
As an individual, the monthly rent you pay could be your biggest expense during the month. If you are regularly paying your rent on time, you can improve your credit score in the long run.
Most buildings and apartments owned by management companies report the monthly rent payment to prominent credit bureaus. If you’re in good luck, your management company could also be reporting the monthly rent payment to your credit agency. If the payment is being reported, then this is your chance to improve your credit score and make rent payments in the due time.
The record, when sent to the relevant credit reporting bureau, would improve your credit score. Additionally, if this record is being kept by your tenant, then you need to make sure that you pay the payments in time. Failure to comply with the payment schedule will mean that your tenant will record the payments in the bureau, which will decrease your credit score.
Become an Authorized User on Someone Else’s Card
Now, we’re letting you into a massive trade secret, which isn’t yet followed by many for improving their credit score. You can build your credit score perfectly by becoming an authorized user on someone else’s card.
You can talk to friends and family about this opportunity and can share their cards to become authorized users on their cards.
By becoming an authorized user on someone else’s card, your credit scores will get intertwined together. Hence, if you have a slightly poor credit score, it will get intertwined with that of another person and will improve significantly.
This can help you in improving your credit score on an almost immediate basis. You can take short term advantage of a friend or family’s credit history to improve your score.
Return Library Books
You might not have thought this out before, but overdue library books could well be bogging down your credit score. The thing with overdue library books is that you don’t consider them to be that big a deal. Well, yeah you do have to return a couple of books the local library, but who cares.
Well, if the book you took is in high demand or if you have taken multiple books without returning, then your local library has the luxury to report you to a credit bureau for overdue items. This will negatively impact your credit history, and the slightest neglect will show on your record. Also, if you’re a recent grad, make sure that you return all books and other copies to the library to avoid fines and a bad review on your credit history.
Be Careful with Store Credit Cards
Many department stores are notorious when it comes to selling credit cards that you might not need. These departmental store credit cards can only work on specific stores but work as actual credit cards. If you happen to have any balance on these credit cards, then you need to make sure that you get it addressed at the earliest. The store card is just like any other credit card you have, which is why you shouldn’t ignore the balance on it.
Ask for Late Payment Forgiveness
If you’ve been associated with a funder or a tenant for long and have made on-time payments, then you can cash on your good rapport to ask them for forgiveness if you’re making one late payment. They can waive off your late fees or can at least make sure that they don’t report the late payment to a credit bureau. But, for this forgiveness, you must have maintained a good rapport with the funder before this one late payment.
Your credit score is important to you personally and to your business as well. With the tips above you will surely be better equipped to make the changes required from your end.