By Haddon Libby
To build credit takes time and represents about 20% of your credit score. Your payment history is the most important factor and represents about 33%. Just doing these basics is half your score. The next 25% relates to how much you owe relative to how much you can borrow. If you have $50,000 in debt and can borrow a maximum of $250,000, that is good versus the person with $25,000 in debt and a maximum of $50,000. Owing money as a mortgage versus a credit line at a department store is better for your credit score as well.
To build your credit quickly, run your monthly expenses through credit cards and pay off the balances quickly. Maintain a few credit cards and rotate your spending to each. By doing this, you show that you can borrow from many sources and pay them all back quickly. Additionally, you never want to have outstanding credit card balances that exceed 30% of total availability. Under 10% is ideal.
Assuming that your personal or business credit is not the best, you need to start paying all of your bills on time and living within your means. You also need to pay more than the minimum amount due. Just like the person who is building credit, rotate your outstanding debt balances while trying to keep borrowings under 30% of what you can borrow.
Collection accounts stay on your record for seven years, bankruptcies ten years, paid tax liens seven years and unpaid tax liens fifteen years. The only way to fix these problems is time. Do not fall prey to the companies that say that they can fix things as only time works.
Did you know that 65% of all small businesses borrow money yet only half of that money is borrowed in the business’ name? Borrowing for your business in your personal name hurts your personal credit score while doing nothing to build your business’ credit.
To build business credit, your business should be a unique entity meaning that it is a limited liability company or corporation. To build credit, register with Dun & Bradstreet for a DUNS number so that all of your credit history is recorded. Your first credit will most likely come from suppliers with credit cards and banks to follow.
Two mistakes that most businesses make are not having a business plan and not maintaining accurate financials. Both are critical to building credibility with potential lenders not to mention the importance at helping you to stay focused and on track.
By following these simple steps, you will find it easier and less costly to borrow money when you need it.
