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How Can I Improve My Credit Score?

by Debi Enders

Before you apply for a small-business loan, there’s something you should know: Your personal credit score matters – a lot.

Small businesses don’t actually have credit scores. Lenders look instead at an owner’s personal credit score to gauge reliability. A credit score also tells a lender how long you have been borrowing money and how many different kinds of credit you have.

A score of 700 or higher says you’ve done a good job of repaying mortgages, car and student loans, and credit card bills on time. It is the kind of score many banks want to see if you’re applying for a loan. A lower score will not necessarily disqualify you, but it might limit your choices and result in a higher interest rate.

Here are three simple things you can do to increase your credit score over time:

1. Pay your bills on time. Late or missing payments can hurt a credit score. Defaulting on a loan causes even greater damage. One of the single most important things you can do to improve your score is to make payments on time until a debt is paid off.

2. Limit the amount of credit you use. It’s hard to improve your credit score if you’ve maxxed out your credit. Instead, try to use less than 30 percent of the credit available to you. That demonstrates your ability to manage debt, which makes you a lower credit risk.

3. Check your credit reports for errors. As many as one in four credit reports contains incorrect information. You may increase your score if you find and correct errors – especially if your report includes accounts that don’t belong to you or erroneous collection efforts.

Improving your credit score won’t happen overnight, but if you make it your goal, both you and your business will be better in the long run.

Debi Enders (debi.enders@commercebank.com) is vice president, small business banking at Commerce Bank.

Submitted 7 years 1 days ago
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