When seeking business loans and capital, your personal credit score will often come into the equation. The higher your scores and the stronger your personal credit, the greater the chances are of securing the business loan you need.
You never know when you might need access to a business loan or a line of credit, so it’s a good idea to constantly monitor your personal credit and work hard to keep it at its highest possible level. Here are some tips that other business owners use in order to keep their personal credit at high levels.
Keep old accounts open.
“Never close old accounts. Even if you never plan on using a particular credit card or line of credit again, leave them open. Make a $5 purchase on cards each month just to keep them active. If you close them it will eventually lower your available credit, utilization and average age of accounts.” — Jim Epton of Dom Huga Ltd
Maintain high credit availability.
“From my experience the best way to raise and keep your credit scores up is to have credit available and not use it. So keep your credit cards at less than 50% their maximum and always pay them down on time and you should have really good credit scores.” — Ben Walker, Founder of Transcription Outsourcing, LLC
Pay credit cards before the statement cut date.
“Pay your credit card balances before the statement date closes in order to avoid balances reporting. If a balance reports, even though it’s paid off it will have a negative impact on your available credit and utilization ratios. Lenders take into consideration what is reported.” — Tom Munroe, CEO of RugStudio
Use a credit monitoring program.
“It’s a smart investment to sign up for a credit monitoring program. For $12 to $15 a month you can have peace of mind, knowing that if anyone tries to use your credit or if an error is posted to your reports you will be notified right away. If there is an issue being fast to respond is key.” — Ari Evans of AAA Handbags
Pay down debts.
“Pay off all debts without incurring late fees. Treat your business like you would your personal finances, buy only what you need and pay all bills on time, every time. Establishing great credit comes with actually being worthy of it.” — Shawn Schulze of HomeArea.com
Avoid carrying a balance every month.
“Use your credit card to pay for the majority of your expenses and be sure to pay it off at the end of the month. That way you’ll never incur interest charges, reap a ton of rewards (provided that you selected the right card) and keep your credit score high.” — Joseph W. Belluck of Belluck & Fox, LLP
Pay all bills on time.
“Pay bills on time. Or just make lots of cash and put in place a system that never allows you to miss any payments. Only finance items when the time is right or calls for it and be patient more often than not.” — Marc Webb, Founder of Real PDL Help
Don’t open multiple new accounts.
“Avoid opening up too many new accounts in a short period of time. Even though you receive new credit card offers, don’t bite unless you really need to. Opening up new accounts lowers your average age of accounts and this can ding your score, as can the new inquiries on your credit.” — Andrew Tran, Founder of Therapy
Avoid personal guarantees.
“Look for business loans that don’t require a personal guarantee and instead will go off receivables and business revenue. There are many of these options available, which will not impact your personal credit score with an inquiry or the reporting of debt.” — Bill Auer, Founder of Tampa Bay Air Charter
Use your credit.
“You have to actually use credit to increase your credit score. While not needing credit is great, your score won’t increase until you borrow. Start small. Even if you can afford the full cost of a small purchase, it may be beneficial to borrow so that you have the score when making a large purchase.” — Matthew Kolb of All High Schools
Keep cashflow detailed.
“Being very clear and detailed on your cash flow. Ensure payments are made on time and in full. Be certain your incurred costs are as expected. Planning and budgeting for every new month to keep everything on track. The more you know the more you can control. Also spend smart.” — Shawn Freeman, Founder and CEO of TWT Group
Pay off credit cards.
“Pay off all of your credit cards before applying for a loan. This shows that you are responsible and don’t use all of the credit you are extended and it also increases your score, as you will show a very low utilization ratio. The less risky you look, the better.” — Christopher Dziak, CEO of Pure Nootropics
Avoid borrowing money.
“Don’t borrow money for your first business. Banks won’t loan you money until you don’t need it. If you can’t afford to work for yourself full time, work a day job until you can. Once you’re successful, there will be plenty of banks or investors to support you. But, I’d still bootstrap if possible.“ — Sean Christman, Founder of Slamdot