Boost Your Small Business Credit Score

Filed in Resources, Small Business by on April 1, 2012 • views: 1085

Small-business Q&A: Boosting your credit score

Houston Chronicle
By Jacqueline Taylor
Published 11:19 p.m., Friday, March 30, 2012

Q. What goes into a credit score? My banker told me I could get a lower interest rate on a loan if my credit score was higher, so I’m wondering what I could do to improve.

A. Your credit score is based on how you’ve handled credit in the past, which is why it’s so important to a potential lender. A high score means you’ve managed your finances well and would be a good risk for a loan; a low score means you’ve had problems in the past and might not be able to handle more debt. Even though you might be able to get a loan if you have a relatively low credit score, the trade-off would most likely be a high interest rate, just as your banker indicated.

There are five factors that determine your score, weighted as follows:

  • 35 percent – Your payment history. A record of on-time payments is the most important factor in your score. This shows lenders you pay your bills as agreed.
  •  30 percent – How much you owe. A lender wants to see that you have credit available. Being maxed out on all your credit cards will be a red flag.
  •  15 percent – The length of your credit history. The only way for a lender to tell if you’ve handled credit well in the past is if you’ve had credit, and the longer you’ve had it, the better.
  •  10 percent – The last time you applied for credit. Opening a new credit card account or applying for a loan often triggers a credit card check. Opening several accounts in a short time will hurt your score.
  •  10 percent – Your credit mix. Having a varied mix of credit types improves your score. The mix can include credit cards as well as revolving, installment and mortgage loans.

Business lenders today are typically looking for a score of at least 700. If yours needs improving, start by checking for inaccuracies in your credit report that could be corrected. Obtain a copy of your report from all three of the major credit bureaus, since the details may vary:

  •  www.equifax.com
  •  www.experian.com
  •  www.transunion.com

 

Jacqueline Taylor is associate region director of the UH Small Business Development Center. Send questions about this column or other small-business issues to jtaylor@uh.edu.

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