For the majority of small business owners, their personal credit is what lenders base their credit decisions on. So what makes some credit ratings better than others? Here is what industry leaders say the main categories to our credit scores are:
- 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 and increase your existing credit lines take the increase, then don’t use it.
- View more tips…
Some lenders and trades report to your bureau and others don’t – get to know who is on yours! Go to Equifax Canada or Trans Union Canada to purchase your own credit report.