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How to Improve Your Credit Score
When building or maintaining a small business, especially a sole proprietorship, it is important to maintain good credit. You will need good credit when applying for a business loan, renting office space, purchasing a business vehicle, opening a business bank account, and many other business activities. In these days of high credit card debt and forclosures, it becomes increasingly difficult to maintain good credit. We easily fall into the same traps as everyone else. And when everyone is doing it, it seems like it's no big deal. But if you can keep your credit score high, or at least improve it, you would be so far ahead. Taking care of your credit is part of being a good financial manager and would greatly improve your business finances and credibility. It also gives you a greater feeling of confidence for your business. When your credit is good and finances are stable, you are able to take the appropriate risks in business that are necessary to succeed. Below is a list of steps to improving your credit.
- Check your credit score. Before you can improve something, you need to know where you stand. Sometimes this can be daunting or even depressing. But you've got to start somewhere. Getting a credit report along with your credit score will give you a full picture of your credit history and where you stand in the eyes of lenders, landlords, or vendors with whom you would like to establish purchasing terms. Click here to get your credit report.
- Submit necessary corrections. Once you get your credit report, look it over carefully. Look at each and every one of the accounts listed on the credit report. Make sure that you have a record or knowledge of each of the accounts listed. If you see some accounts on there that you don't think are yours, you must submit a correction. The credit report will give you instructions on how to do so. It could be that someone else has been opening accounts on your behalf, or even behind your back. If you notice there is a big problem with this, you may need a credit monitoring service.This service would email you whenever there has been a change to your credit file, if someone applied for credit under your identity. It would also provide identity theft insurance in case someone did steal your identity and personal information and began opening up accounts and charging purchases in your name.
- Get current on your bills. If your credit report shows past due accounts, you must you due diligence to get current with those bills. If you have a business, you wouldn't want customers to be late paying you. In this world of karma, you should pay those whom you owe money to. Doing this can karmically increase your chances of being paid on time and in full by your customers. How to catch up on your bills when you are so far behind? This is where desire, willpower, and most of all, discipline come in handy. You will have to sit down with an Excel spreadsheet or other financial software and calculate where you can cut spending to free up funds to pay those bills. Put together a plan and then do it. Once your bills are caught up, you're ready for the next step.
- Pay off credit card debt. This is one of those tasks that are way easier said than done. But you and your business will benefit from it in the long run. Debt is like an invisible weight that is on your shoulders. You may not really think about it, some people think there is nothing wrong with it. There are certain types of debt that are truly helpful, like home, car, and student loans. However, credit card debt usually doesn't have any assets to show for it, making it unsecured debt. Even if you purchased assets for your business using credit cards, the assets usually cannot be sold for nearly what you charged on your credit card for it. Also, unlike home,car, and student loans, credit cards do not have a pay off plan. They are not like a 5 year car loan. Often times, there seems to be no end in sight. So it sits on your shoulders, forever stifling your ability to get ahead and succeed. That is why it is a good idea to make a commitment to paying off credit card debt. Most credit card debt can be paid off in 2-5 years. Yes, this also takes willpower, desire, and discipline. So, again, sit down with your Excel spreadsheet and put together a 2-5 year plan to pay off your debt. You'll be suprised at where the extra money can come from. Do impulse buying, eating out, or keeping up with the Jones' ring a bell?
- Use your credit card sparingly. You have worked so hard to pay off your credit card debt, so you now have a greater appreciation for keeping off the debt. That said, it helps maintain your credit history if you have an active credit card that you are using and paying off each month. The way I do it is to pick one consistent category of expenditures to charge on the card every month. Then I pay it off at when I get my credit card bill. The expense category I use is groceries. This is because, for the most part, groceries are regular consistent purchases. They are not a dangerously expensive consumer item that gets purchased on a whim. But it's enough to start out with when you first start using your credit card again. It's also good to keep a credit card(s) that you have had history with.
- Get credit card benefits. If you have demonstrated good stewardship of your credit card by using it sparingly and consistently paying it off every month, you are ready to take advantage of credit card benefits. These can come in the form of mileage accrual, cash back, merchant points, and other great rewards for using your credit card. If you are buying regular purchases for your business, these rewards can be substantial. And you deserve it for being such a great steward of your credit!
Credit Improvement Resources
Here are some links that we also mentioned above to get you on your way to improving your credt.