If you’re a small business owner or just starting out as an entrepreneur, credit is very important. Having a healthy score with payments up to date is the ideal for a small business to access new funds and credit possibilities. But this isn’t always the case. Many times, growing businesses suffer due to a dip in sales or lack of guidance when it comes to taking out loans or credit.
Whatever the reasons, if your personal or business credit score is a little off the rails at the moment, the good news is that it can be fixed. There is no magical solution to a poor credit score, but there are things you can do to start “healing” it and get back on track with your lenders and the banks.
Check For Errors
Ask for your credit reports and look through them thoroughly. Mistakes can happen. It may be that you find a payment wasn’t reported or a payment was filed as “late” when you can prove otherwise. Double check the amounts owed and, if need be, hire accountant to help you comb through your file. If you do find something not right in your report, go straight to the credit bureau and dispute them. If you have proof that there is incorrect information on your score, chances are they will be fixed rapidly.
Once you’ve done that, you can calmly sit down and make a payment plan to quickly recover from your low score.
Pay Off Small Balances
Many small balances pending can be harmful to your credit score. Especially if they don’t amount to much, but are overdue. The credit bureau and potential lenders perceive these as you not being able to handle even a small sum of money. Try to pay off the small balances due as soon as possible. This not only reduces the amount of debt that you owe, but also allows lenders to see that you are handling debt responsibly. Don’t move debt around, just pay it off.
Negotiate With Your Bank
Sit down with your bank representative and try to negotiate a “goodwill adjustment” if you pay your pending balance within an allotted time. They may offer to “erase” that debt or an account that went to collection if you come to agreement. It’s very important to put this agreement in writing before you pay the debt, as the bank is under no obligation to clean your record. Once the agreement is made, keep your word. It can be more harmful to back out at this stage than to not negotiate at all.
Use Your Credit Cards - Carefully
If you or your business is seriously in debt it might seem to make more sense to stop using credit cards and to cancel the ones you have as soon as possible. But this can be counterproductive to your overall credit score. Continued use of a credit card can show that you’re able to manage new debt and pay the bills responsibly and on time. Try to keep your spending under 30% of your total credit, otherwise you’ll look like a big spender - not a good thing. Make sure that you are able to pay before buying. Using the credit card is just a strategy to keep your score on the rise. But when the credit card bill comes along, make sure you are able to cover the costs of what you purchase and make sure it’s something worthwhile that your company really needs.
Leave Old Debts On Your Report
Once a debt is payed off, your first impulse may be to run to your bank or lender and ask them to erase it from your record. Big mistake! A bad debt, one that wasn’t handled properly may be bad for your overall score, but it disappears from your record after seven years. Properly handled debt, that was always paid in time is actually beneficial to your score. It makes your history of credit management seem longer and shows that you can be trusted to make good on your payment promises. Leaving old accounts and paid debts on your record is by far the wiser choice. Don’t be afraid to show the good job you’ve done over the years paying off your small business loans. One or two mix ups don’t erase all the effort you’ve made before to keep up with your bills. If you bought a house and made the payments on time - show that to your prospective lenders. If your business took out a loan to invest in inventory and was able to fully pay back - that’s what a bank is looking for in prospective clients, so use it to your advantage.
Set Up Payment Reminders
If your goal is to clean up your credit score and set yourself on the path to success, you have to be very strict about paying debt. From now on every single payment date is sacred and every debt must be religiously paid on time. If you have trouble organizing your dates and amounts due, set up reminders. Make a schedule where you specify the debt being paid, the amount due and the date when it must be made before it’s reported as late. This will not only help you stay on top of your payments and improve your score, but it will also help you keep track of your overall debt and slowly start to decrease it. Your business will be able to peek out from behind the wall of debt that didn’t let it grow and start expanding. Use any means available so you don’t forget. Set an alarm on your phone, stick the bill to your fridge, have your secretary remind you a week before, a day before and the day of. Anything is valid as a reminder to pay your credit on time.