A credit score is a number ranging between 300 and 850 used to depict your creditworthiness. The higher the number, the better your chances of getting a loan. Lenders use your credit score to predict how likely you are to pay back their money on time. The credit score is generated by a credit scoring model that analyzes the information on your credit report.
If you are a sole proprietor, there are several ways in which your personal credit score can impact your business finances. Therefore, it is imperative to maintain a good individual credit score for your benefit and that of your business.
Credit Score Factors
Transunion, Experian, and Equifax are the three major credit reporting agencies in the U.S. These agencies are tasked with reporting, updating, and storing consumer credit histories. Although these agencies use different criteria in determining credit scores, five factors are common when calculating the scores.
- Total amount owed
- Types of credit
- Payment history
- New credit
- Length of credit history
How Can You Improve Your Credit Score?
Now that you know what information is used to determine your creditworthiness, it’s your responsibility to improve it? As we stated earlier, this score tremendously impacts your chances of qualifying for financial assistance from any lending company. To avoid frustrations when applying for a loan to boost your startup company, here are several ways you can improve your credit score:
Pay bills on time: To see any noticeable change in your credit score, it is required that you have at least six months of on-time bill payments. This is probably the most straightforward way of improving your score.
Ask for higher credit limits: Your credit score improves when your overall credit utilization goes down. You can ask for an increase in your current credit card limit from your card issuer. An increase in credit limit will automatically decrease your credit utilization, as long as you are not maxing out your card limit every month.
Review your credit report for errors: Your credit report can have errors that negatively impact your credit score. It is essential to take time to check your credit report for mistakes so that you can dispute and have them removed immediately.
Avoid opening new credit: It may be tempting to apply for new credit every time you need money. However, limit these instances to only when necessary. Applying for new credit and maxing out your current credit can take a serious toll on your credit score.
Conclusion
Although it’s advisable to separate your personal and business finances, there are still many instances where your personal credit score will impact your business credit score. Lenders consider both credit scores when reviewing your commercial loan application. Therefore, it is vital to improving your personal credit score to obtain the best business funding available in the credit market.
