How Can I Improve My Credit Score

by Debi Enders

If you operate a small business, your personal credit score matters — a lot.

That’s because small businesses don’t have credit scores. Lenders look instead at your personal credit score. It tells them how long you have been borrowing money, how many different kinds of credit you have and how reliable you are at repaying it.

When you apply for a small-business loan, many banks want to see a score of 700 or higher, which suggests you’ve done a good job of repaying loans and credit card bills on time. A lower score won’t necessarily disqualify you, but it might limit your choices and result in a higher interest rate.

Want to increase your score? Here are four things you can do:

1. Pay your bills on time. Late or missing payments hurt a credit score. Defaulting on a loan inflicts even greater damage. The single most important thing you can do to improve your score is to make on-time payments until a debt is paid.

2. Limit the amount of credit you use. It’s hard to improve your credit score if you’ve maxed out your credit. Try to use less than 30 percent of the credit available to you. That demonstrates your ability to manage debt, which makes you a lower credit risk.

3. Diversify your credit. Your credit score may get a small boost if you use several forms of credit: a mortgage, credit cards and a home equity line, for example. That illustrates your ability to make multiple payments at once.

4. Check your credit report for errors. One in four credit reports contains incorrect information. You may increase your score if you find and correct errors — especially accounts that don’t belong to you or erroneous collection efforts.

Improving your credit score won’t happen overnight. But if you work at it, both you and your business will benefit in the long run.

Debi Enders (debi.enders@commercebank.com) is vice president, small business banking at Commerce Bank.