Many of today’s business owners have had a few bumps on the credit score road.
Fear not… it’s no longer terminal.
A low credit score does not have to keep you from getting a home loan, business loan, or consumer credit. A low credit score isn’t permanent, so here are eight things you can do to improve your credit score quickly and easily.
#1 Understand the Credit Score Breakdown
FICO scores are the most used credit scores in the United States. FICO, though it guards its scoring system, does provide the consumer with general information about how a score is formulated. They break your credit information into categories, give each a weight, and then give come up with your credit score. Understanding that some things count more than others can help you determine which areas to focus on when trying to improve your score:
- Payment History: Whether you’ve had late payments or are delinquent accounts for 35%.
- Debt-to-Credit Ratio: How much debt you have compared to the credit you have available accounts for 30%. The smaller the ratio, the better your credit score will be.
- Length of Credit History: How long you’ve had credit makes up 15% of your credit score. The longer you’ve had established credit, the better.
- New Credit: New credit lines account for 10%. Only open credit when you must have it or when it makes financial sense.
- Credit Mix: Having a variety of credit lines shows that you understand how to handle different kinds of credit and makes up 10% of your score. Try to have a mix of both revolving and installment loans so that FICO can see that you are a good risk.
#2 Take a Look at Your Credit Report
This is easy to do by simply contacting the credit reporting agencies. Each one is required to provide you with a free report once a year. If you feel you need to check your report more frequently, there are many companies that offer this service as well as many credit cards that provide you with a credit score report each month.
#3 Fix Mistakes You’ve Found
The reason for getting your report is two-fold. The first is to determine what your score is and what areas need improvement. The other is to look for mistakes. Credit report mistakes are very common, with up to 20% of consumers finding errors each year. If you find an error, just follow the instructions for filing a claim to have the error fixed. Be sure to keep a copy of all documentation for your files.
#4 Explain Negative Information
If you have negative information on your report, you can make a statement explaining why it happened. Having an explanation on the report can be beneficial if you are on the cusp of being able to get a business loan or home loan.
#5 Make Your Payments on Time
Every time you miss a payment, your credit score drops. That is why it is important to make your payments on time, every time. Studies show that doing so can raise your credit score significantly in just one year.
#6 Decrease Your Debt
The more debt you have, the lower your score will be. FICO scores rely heavily on how much debt you have compared to have much credit you have available.
One way to decrease debt is by using the debt snowball plan. To use this plan, pay off your smallest bills first and finish by paying off the largest one. Each time you pay off a bill, use the money from the first bill to help pay off the next, thus creating a snowball effect.
#7 Be Wise When Opening and Closing Lines of Credit
Many people take drastic measures when they find that their credit score is low. When rebuilding your credit, you should not close all your accounts, nor should you open lots of new ones. Instead, try to keep older accounts open and refrain from adding new accounts if possible.
#8 Have Different Credit Types
Showing that you can handle different types of credit will also increase your score. Look at getting both installment loans and revolving credit. However, only open new accounts that change up your credit mix and only do so if you can afford to make the payments on time, every time.
If you’re a business owner that doesn’t have perfect credit, Harper offers a funding advance that provides much needed cash in exchange for a specific percentage of future sales. This allows business owners to obtain the funding they need quickly and repay it based on future transactions rather than credit score.
Give us a shout, you may be surprised at what’s available.
Either way give us a call at (310) 817-0376 or fill out your contact info to the right if you’re interested in learning what we can do for you. Our team is standing by and looks forward to working with you!
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