5 Tips to Managing Your Credit
In an unstable economic environment, a good credit rating is more important than ever before. Unfortunately, many people are not familiar with the factors that influence their personal and business credit scores or the steps they can take to improve them.
Stay on the right path to a solid business credit rating with these helpful tips:
- Keep personal and business finances separate - Open banking or credit accounts in your business name to establish the lines of credit that will become the foundation of your loan history. Borrowing money when it can be repaid quickly will help demonstrate your ability to pay back future loans. Beware of using personal funds to pay business expenses, which will not improve the credit of the business, and may expose the owner to business debt liability.
- Reporting of Payments - Verify that your vendor payments are being properly reported to the credit reporting agencies (not all vendors report this information). This is an important step in establishing your business credit profile.
- Credit Report Monitoring – Review your business credit report annually (at minimum) to verify that the information is correct. Notify the reporting agency of any errors immediately.
- Payment History – Pay your debt obligations on time. Even if you can only make the minimum required payment, be sure that your account is current.
- The 5 C’s - Gain a better understanding of how a potential lender will view your credit worth,by answering the following questions about your business:
- Character – What is your company’s credit history and overall business reputation?
- Capacity – Do you have sufficient cash-flow to meet your loan obligations?
- Capital – What is the net worth of your business?
- Collateral – Do you have assets that can be used to secure a loan?
- Conditions – What are the overall economic conditions that impact your business? What does the competitive landscape look like in your industry?
Remember, any improvement in your credit score increases the likelihood that potential lenders will view your request favorably. Follow these simple guidelines may improve the rate at which you borrow today, tomorrow and in the future.
