FACT: Nearly all small business owners have to sign personally when they obtain any sizable loans or leases for their business. Therefore a good personal credit rating/score is one of the most effective way to get access to capital faster and cheaper not only for your business but for mortgages, investment loans, credit cards and auto financing. Here is what industry leaders say the main categories to our credit scores are along with a weighting:
- Payment History – 35%
- Current Amounts Owed – 35%
- New Opened Accounts & Credit Inquiries – 20%
- Length of Credit History – 10%
Being that approximately 70% of our score come from the combination of Payment History and Current Amounts Owed (i.e. utilization), here are 2 quick tips we can all use to improve our score:
- Always Pay on Time. It is better to make your minimum monthly payment on time then to make a large payment or pay in full and be late. Many of our contractor clients are not home to get the mail so ensure you have some way of making payments on time such as phone banking, the internet, spouse, child or book keeper.
- Increase your Credit Limits. This may sound crazy but approx. 35% of your credit rating has to do with “utilization”. Here is a simple example: If you have a $1,000 limit on your credit card and use that $1,000 every month you will have a 100% credit utilization – that is bad. If you have a $2,000 limit on your credit card and still use $1,000 then you will have a 50% utilization rate – that is good. So when you get the call from your lenders or credit card companies offering to increase your existingcredit lines take the increase, then don’t use it.
In Canada there are only 2 agencies that lenders can use to obtain your credit report and they are Equifax Canada and TransUnion – you can purchase and view your own credit history with either of them online. Seeing your own report is also a way to ensure there isn’t wrong information on your file that could affect your rates and ability to borrow. An easy way to make life easier.