After Obtaining Credit that Fits Your Needs, Make Sure You Keep it Fit.
By Betty Uribe, Ed.D.
Keeping your credit in good shape is similar to keeping yourself healthy. It takes planning, effort and discipline to not overindulge, have control over activity and keep the numbers in check. It’s important to make sure your credit is in good shape so that you have it available when you need it to operate or invest in your business. Plus, it is a lot easier to maintain a good credit profile than repairing a damaged one, which can sometimes take years to do.
Keeping a good credit score is essential for keeping access to the credit you already have and for obtaining a new business loan or credit from your vendors. Following are some tips to help you keep your credit where you want it to be.
Make all your payments on time: The information about the loans, auto leases and credit cards that you take out personally and for your business is regularly reported to credit bureau agencies. Information such as the credit limit, outstanding balance, payment amount and your payment history are all listed on your credit report. It is essential that you make your payments by the due date so that your credit accounts do not appear as being paid late, which will have negative effects on your credit score.
Not all of your monthly payments, such as your utility bills or office rent are listed on your credit report, so they don't affect your credit as long as you're paying on time. However, any bill can potentially wind up on your credit report if you’re a “late payer” and your account is sent to a collection agency.
Make a budget and stick to it: Budgeting is essential for proper credit management. Planning out your business’ cash flow and investment plans will help you anticipate your need for borrowing. It will also help you know your ability to make the monthly payments and pay off balances. If you consistently run up debt, your monthly payments will increase along with those balances. You don’t want that to get you and your business in trouble. Instead, be thoughtful about purchases and have a sensible timeframe to pay back any borrowing.
Keep up-to-date records: Whether electronically or by paper, maintain copies of your credit card receipts, statements and your proof of payment for all of your bills. You’ll need that for tax purposes. Also, check statements to ensure they are accurate in both reflecting your purchases and payments. If something does not look right, investigate it and get it corrected right away. Dealing with an error on your credit report years later is a lot more difficult than taking care of it when it first appears.
Do not mix business with pleasure: Separating your personal and business expenses will help you be organized, maintain better financial records, apply for business credit and prepare your tax returns. The best method for managing these costs is to get a credit card or credit line that is only used for business and having separate personal and business checking accounts. By doing so, you are proving to various creditors that you take your business seriously and this also may improve your credit score.
Use your credit: Don’t let your credit cards sit in your wallet. Using credit cards and lines of credit can improve your credit score if you demonstrate that you can increase your balances and pay them down.
Federal law states that the three major credit reporting agencies (Equifax, Experian and TransUnion) are required to provide consumers with one free copy of their credit report every year. You can request your report via AnnualCreditReport.com and view it online or request a copy to be mailed to you.
If you need to dispute any information, it’s a smart idea to print a copy of your report. Before you download the report, make sure that your computer is protected by the latest antivirus and malware programs so that your information remains confidential.
By following the tips listed above and knowing how to access your credit report, you’ll discover the rewards of keeping your credit fit and your business finances healthy.
Betty Uribe, Ed.D., is an Executive Vice President of California Bank & Trust, which has launched a financing initiative aimed at minority and women-owned businesses in California called TEAM (Tools, Education, Access and Mentoring). For more information, please visit http://www.calbanktrust.com/team. You can also follow CB&T on Twitter: @calbanktrust or ‘like’ them on Facebook: https://www.facebook.com/calbanktrust.