Haunted by Credit History

Every entrepreneur knows that “cash is king.”  But the tougher lesson—and one that many business owners struggle to learn—is that credit standing is just as important. Our financial track record follows us everywhere. If it’s bad, it will haunt us for a long time. If it’s good, it opens doors and gives us access to the cash we need to maintain and grow our businesses.

There are two reasons why this is such a blind spot for so many entrepreneurs. One, most people start businesses based on their particular passion or expertise, not because they are experienced in running a business. They don’t always know what they don’t know, and in many cases, that’s the numbers. And two, you have to realize that many parents and educators never talk about the importance of credit scores and the basic rules for building a good one.

This is a problem because, for the average entrepreneur who is just starting out, personal credit is business credit. A person might have a great idea for a company, but if his or her credit history is poor, they might struggle to access even a basic amount of funding to get started.

Healthy credit is paramount to the growth of an established small business, too, providing the access to capital needed at various stages of business expansion.

We must embrace the education we need to maintain healthy credit. The steps are not difficult:

– The first step is to pull your credit report. It’s free through www.annualcreditreport.com. A credit score under 750 has the potential for improvement.

– Look for entries that are incorrect and contact the credit reporting agency to dispute those errors.

– Make payments on time.

– Improve a score with a secured
credit card that allows you to make monthly payments.

– A second open or active line of credit payment such as an installment loan can improve your score faster. Two to three active lines reporting at the same times maximizes your score potential.

– Pay down debt and use 30 percent or less of your credit limit.

– Once your score improves, refinance any outstanding auto loans, mortgages and any other debt.

– Pull a credit report six months after making adjustments to see the improvement in the score.

Strengthening one’s credit is the single most tangible improvement entrepreneurs can make to their bottom line, and it’s an important step toward accelerated business growth over the long term. Business owners, both aspiring and established, need to take it seriously.