Your credit score — the number between 300 and 850 that represents your personal creditworthiness — has a larger impact on your business and your life than you might imagine. The higher your score, the better your odds may be of leasing a car, equipment, or space to house your company. A better score may also reduce your expenses, by helping you qualify for lower interest rates on purchases, too.
Taking steps to increase your credit score may also have a direct impact on your monthly budget and your ability to achieve larger goals like buying a building or expanding overseas.
So what can you do to improve your score quickly? Beverly Blair Harzog, credit card expert for US News & World Report and author of The Debt Escape Plan, has some advice.
First, she says, start by finding out what your current credit score is. You can get a free credit report and score once a year from each of the three credit reporting agencies – Equifax, Experian, and TransUnion. Review the report to find any information that is incorrect and dispute it. Having negative items removed may increase your score right away.
Take these five steps to help boost your credit score:
1. Get your credit card debt to below 30% utilization.
Thirty percent of your FICO score (short for Fair Isaac Corporation), says Harzog, is based on how much of your available credit you’re currently tapping into.
To calculate your utilization, add up all of your credit card debt and divide it by the total amount of credit you were originally granted. You want that total number — across all your cards — to be under 30%. (But 10% is even better, she says.)
Meaning, if you have three credit cards with a $1,000 credit limit on each, your total available credit is $3,000. And if you’ve charged a total of $500 on each card, or $1,500, you’re at a 50% utilization rate. That’s too high.
One solution is to pay down the debt. The other is to increase your credit availability.
2. Ask for a credit limit increase.
Harzog recommends calling your credit card issuers and asking for a credit limit increase. But you should do this only if you have a track record of paying your bills on time.
Do not make this call if you frequently pay late. If you’re a late payer and you ask for an increase, the credit department may look at your account and decide to reduce your credit limit, which would in turn lower your score.
3. Keep your credit cards active by charging a small amount each month on them.
Cards that have no activity are at risk of being closed. A closed card would reduce your available credit and negatively impact your score. So consider buying something small on it to keep it open.
Then try to pay off the card each month, to keep your utilization low.
4. Get into the habit of paying all your bills on time.
Since 35% of your FICO score is based on payment history, even one late payment can cause a score drop. This includes your credit cards, mortgage, car payment, as well as your utilities and phone bill, says Harzog.
If you have difficulty staying on top of your bills, create a budget and at least make the minimum payment each month, so that your creditors can report you paid on time.
5. Consider a credit builder loan.
Credit unions and community banks frequently offer these tools, which allow you to demonstrate a track record of timely repayment. These types of loans “Won’t give your score as big a boost” as the other steps, but they will have an impact, says Harzog.
While working on your score, do not close any credit accounts, she recommends. Every account closed reduces your available credit, which then increases your utilization, which you don’t want. So unless the annual fee is huge, leave it open.
The truth is, you don’t have to have high income to earn an excellent credit score to benefit your business, says Harzog, “You just have to pay on time.”