Credit report inaccuracies can wreak havoc on your business’ credit score- and when they do the result can be disastrous. A business’ credit score is generally the deciding factor in the approval of most business loans and business financing. Moreover, prospective business partners, investors, and clients all may consider your business’ credit rating when deciding whether or not to enter into a transaction with you.
How can you reinstate your credit rating if you find errors? Here are some steps you can take to quickly contain and repair the damage:
- Ask for a copy of your credit report – If you think there are mistakes in your credit report, the obvious first step is get a copy of it. Ask for copies of your credit report from all three of the major credit bureaus (Experian, Equifax, and Transunion). They may be receiving different reporting data from your creditors.
- Be aware of the way errors can be created – There are various ways that errors can appear in your credit report. Sometimes computer errors cause creditors to send inaccurate information to the credit bureaus. At other times an inaccurate security number can cause a mix-up in identities, with you getting someone else’s credit score. The third possibility is that you are the victim of identity theft.
- Carefully check your credit report – You can examine your credit report after ordering a free annual report from all three major credit bureaus. Check it carefully for errors. Make sure that credit information of other family members is not mixed up with yours. And be aware that information that is over 7 years old can be removed. If you find errors, make a list of them.
- Contact the credit bureau reporting the inaccuracy – Call the credit bureau and report the inaccuracy. You may also want to prepare a letter with your name and address, state the item in dispute and explain why it is inaccurate. Then request a correction. Be sure to enclose photocopies of documents supporting your position.
- Contact the creditor – If the mistake is still in dispute between you and the credit bureau, notify the creditor himself that you are disputing him. Send him copies of all the documents you already sent to the credit bureau. From this point on, the creditor is obligated to include a notice of your dispute every time it reports this information to a credit bureau.
- Consider contacting a lawyer – If your findings are serious, it may be advisable to seek legal assistance.
As the US economy still labors under a sluggish recovery, countless small business owners across the nation have experienced a sharp decline in their business credit scores. Chalk this up to a combination of poor sales and a growing pool of cash-strapped customers struggling to fulfill their financial obligations.
Fortunately, there are several steps business owners can take to remove, or at least minimize, the debilitating effects the economic turmoil has had on their credit. Business owners should keep in mind, however, that cleaning up a credit report takes time and work. There are no quick fixes to rebuilding good credit.
That said, here are several steps small business owners can take to clean up their credit record:
- Separate your business credit profile from your personal credit. If you haven’t already done so, make sure your business has its own credit rating and history. Many business owners are unaware of this option, especially if they are running a sole proprietorship, and they finance their businesses with their own credit and assets. This can be a costly mistake, since your personal credit profile will then directly effect your business credit, and visa versa.
- Make it a priority to pay all your bills on time. Making payments in a timely manner will have a significant impact on your credit score. While old negative credit entries can blemish your credit score, grater weight is generally placed on more recent financial activity. After seven years most of those detrimental entries will be deleted from your credit history.
- Make use of a small amount of your credit. One factor that significantly affects a credit score is the debt-to-available credit ratio. Most money managers and financial experts recommend staying below 30% or a maximum 50% of your credit limit.
- Make an effort to pay off as much debt as possible. Don’t hold back on paying your old, outstanding debts, including business and student loans. Widening the gap between your debt and your available credit shows that you are handling your obligations responsibly.
- Don’t be tempted to close too many credit card accounts. In an effort to clean up their credit, many make the mistake of immediately closing all their credit accounts after paying them off. But this practice may actually end up hurting your credit record because your debt-to-credit ratio will be affected. It is thus advisable to be deliberate in deciding which accounts to close and which ones to leave open.
- Seek out transactions that will improve your credit score. Specifically seek out those arrangements that will rebuild your business’ credit history and reputation. You can find out which businesses report to the major credit agencies D&B, Experian, Equifax and TransUnion, and make it a point to do business with them and to keep your payments on time. The credit reporting agencies, Ex themselves also a number or credit-building services for a fee.
- Try to negotiate a lower interest rate on your credit cards. The interest rate you are paying on credit accounts determines the size of your debt and how much you owe when you carry a balance on your credit card. It pays to look into the interest rate on your credit card and to “shop around” in order to get the best deal possible. If you decide to stay with your current credit card company, try to negotiate a better deal for yourself.
- Re-evaluate your spending habits. This seemingly innocuous tip is the most important of all: If you really want to clean up your act, change your spending habits. For small businesses, this generally translates into better cash flow management: effective debt collection, monitoring payables and receivables, and good inventory management.
Having a good business credit rating is a golden key that can help open the doors of financing- whether from the bank, vendors and suppliers, or potential investors. And with the current economic environment making it harder for small businesses to get the financing they need, this key is all the more vital to the success of a business.
Here are a few tips to help build up and maintain your business’ credit profile:
Tip #1: Separate your business credit profile from your personal credit. Many business owners are unaware of this option, especially if they are running a sole proprietorship, and they finance their businesses with their own credit and assets. This can be a costly mistake, since your personal credit profile will then directly effect your business credit, and visa versa.
Tip #2: Register your business with the major credit reporting agencies and monitor reporting. Banks, credit card companies, utility, and phone companies, as well as numerous other businesses will report billing and credit information regarding your business to the major credit reporting agencies: D&B, Experian, Equifax and TransUnion. With this information, the credit reporting agencies produce reports and credit scores. Keep in mind that any information on your business’ financial status, as well as any court cases and bankruptcies will also make their to these reports. Thus, it is important to monitor these reports regularly.
Tip #3: Make good cash flow management a priority. Make it a priority to pay your bills on time. Simple idea, right? It just may not be so simple to implement- especially if business has not been so great lately. In a previous article I included a few doable tips to improving your small business’ cash flow.
Tip #4: Seek out transactions that will improve your credit score. As I mentioned above, whether you realize it or not, chances are that your business is already generating data that can be accessed by a third party to determine your business’ credit-worthiness or financial stability. You might as well specifically seek out those arrangements that will build your business’ credit profile. You can find out which businesses report to the credit agencies and make it a point to do business with them and to keep your payments on time. The credit reporting agencies themselves also offer a number or credit-building services for a fee.