You might hear the term credit score quite frequently, but did you know just important it is to you as a small business owner, particularly when applying for funding?
Your credit score can make or break your chances of receiving a small business loan, but here’s the good news: a bad credit score can be remedied. Here’s 5 easy ways you can boost your credit score, many of which you can begin implementing today.
What Are Credit Scores?
Your credit score is a three-digit number that reflects how likely you are to repay debt. This number is determined by Equifax, Experian and TransUnion, the three main credit reporting bureaus. An individual’s score usually ranges from 300 to 850, however they can be broken down into the following categories:
Excellent Credit: 750+
Good Credit: 700-749
Fair Credit: 650-699
Poor Credit: 600-649
Bad Credit: below 600
The higher your credit score, the better position you’re in to negotiate lower interest rates or larger loan amounts.
How to Get Your Equifax Credit Store?
Many small business owners are unaware of what their credit score may be, but thankfully finding out isn’t difficult, nor does it cost money. You are entitled to receive one free credit report from each of the three credit reporting bodies every year. We’ve provided their contact details below:
In order to receive your credit report, you will just need to provide the requested identification.
Here’s how you can boost your low credit score in as little as 5 easy steps.
Consolidate Your Credit Score
Some people may think having several smaller debts across multiple credit cards is better than having a larger debt on a single credit card. This actually isn’t the case, particularly if those multiple smaller debts add-up to a pretty sizable debt.
To assist with boosting your credit score, you should pay off those smaller debts and close the cards you no longer need. Then, opt to use just one or two main cards for everything. Not only does it make you seem more reliable, but it’ll also help you to keep track of repayments easily (an important factor in your credit rating).
Apply for a Credit Card if You Don’t Have One
Simply applying for credit cards that you don’t actually need won’t do your credit score any good, however it is worth noting that someone with no credit cards tends to be seen as a higher risk than someone who has managed a credit card responsibly. Therefore, having one credit card in your name can be beneficial, but only when you use it correctly. Don’t let balances or other ‘revolving credit’ turn into high amounts of debt owing, and always stay one step ahead of your repayments.
Fix Your Credit Utilisation Ratio
Your credit utilisation ratio simply refers to the amount of your credit card balance compared to the credit limit. This is the second most important factor taken into account when determining your credit score, with payment history coming in at number one.
Generally, a good credit utilization ratio is less than 30% and this means you’re using less than 30% of the total credit available to you. To keep this figure healthy, it is recommended that you reduce your credit card balances, refrain from new credit card purchases, or talk to your credit card issuer about increasing your credit limit.
Schedule Your Repayments so They’re Always On Time
One of the most simple pieces of advice we can offer to those wanting to boost their credit score is this: begin ensuring every single one of your repayments is on time (or better yet, paid early).
There are some really simple yet effective ways you can do this. Many banks and alternative lenders have reminder services, including offering payment alerts through emails, SMS, or more. Just keep in mind that automatic payments will usually only pay off the minimal amount owing. Therefore, they will not assist with dramatically boosting your credit score over time. Some services, however, may allow you to increase this amount.
Check Your Credit Report for Any Inaccuracies
Did you know that even the smallest of inaccuracies (such as a typo in your address) can negatively affect your credit score? Sadly, it isn’t uncommon for a credit report to contain a mistake. We recommend checking your credit report annually to ensure this isn’t the case. You are also entitled to add a ‘notice of correction’ to your credit report if you feel as though something needs further explaining. For example, perhaps you missed a repayment because you were dealing with an illness. You wouldn’t want a potential lender to hold this against you, so therefore, an explanation may be necessary.
There you have it – 5 easy ways small business owners can boost their credit score. Want to increase your chances of obtaining funding by raising your credit score? Today is the best time to start!
Interested in applying for an unsecured business loan with Lumi? Fill in our application online or call 1300 00 LUMI.