It can open doors to capital, contracts and more.
Poor personal credit can stop a young business dead in its tracks, even if you do literally everything else right.
That’s because, during the first few years of your company, your personal credit is essentially the business’s credit. Lenders need to know if your company will honor its debts. You’re the person cutting the checks, so your own credit history serves as Exhibit A.
And there are huge benefits to building and maintaining your credit. For starters, it can allow you to access capital at lower interest rates. Lenders aren’t the only ones who’ll want to review your history. A strong credit history can help open doors with investors, suppliers and other potential partners, too.
What’s the best way to build an excellent credit history? Try using these strategies in your small business.
Stay Active
To maximize your credit score potential, you need to have active accounts showing on-time monthly payments. Having credit cards, charge accounts or loans reporting payments on your credit report every month—that provides the credit bureaus with proof that you are capable of paying on time.
Look into credit-building products with your financial institution, including loans and secured credit cards if you don’t have strong enough credit to open a standard credit item.
The 30 Percent Rule
If you have a credit card or charge account, illustrate strong credit management by keeping your balance below 30 percent of the credit limit at any time. This ratio shows that, although you have additional credit available, you don’t need it.
You do not need to maintain a balance on credit cards to increase your credit score. You just need to use them regularly and pay them on time. Paying more than the minimum is also a great way to lower your outstanding debts and increase your credit score.
Time Matters
Since the length of time that you have had a credit account is factored into your credit score, try to keep a credit account open for multiple years to show longer credit history. One strategy is to keep one credit card that has a low interest rate and little or no annual fee as your primary credit card. That way, you can prove that you can successfully manage a long-term financial relationship.
Attack Older Debts
Focusing on the positive behavior is going to help increase your score, but if you have past-due debts, then you need to have a plan to pay those off so that there is less holding you back. Try to settle or pay off in full any past-due amounts as your budget will allow.
