Best Practices

KCSourceLink: Know Your Credit

Published Sep 12, 2013 by

 
Many Startup and existing businesses are looking for funding for their companies. What many aspiring and existing business owners don’t realize is that their own personal credit score and history can be a stumbling block to financing their businesses.

Valeria Edwards of Kansas State Research and Extension offers some great tips on understanding credit scores, managing credit behavior and reviewing your credit report.

Credit score

According to Edwards, your credit score is a reflection of your credit history, and helps lenders and others predict how likely you are to make credit payments on time. There are five commonly recognized factors that influence your credit score:

  • Payment history
  • Amount owed
  • Length of credit history
  • New credit
  • Types of credit

Credit behavior

While you can’t “repair” poor credit of the past, you can move forward with better behavior in the future. Edwards recommends the following common sense steps:

  • Pay your bills on time.
  • Keep your credit utilization below 30 percent of available credit.
  • Keep older accounts open to show a long credit history.
  • Acquire new credit thoughtfully.
  • Have some account activity on each credit card periodically.

Credit report

You won’t know if there is a problem with your credit report if you don’t check it. The three national credit reporting agencies are required by the Fair Credit Reporting Act to provide you a free copy of your credit report each year. You can get that at www.annualcreditreport.com or call 1.877.322.8228.

  • Once you’ve accessed your credit report, check a few things:
    • Make sure your name is spelled correctly
    •  Make sure your social security number is accurate
    • Be sure you know about all accounts listed and balances

If you discover inaccurate or incomplete information, the Federal Trade Commission (www.ftc.gov) recommends specific actions, starting with notifying the reporting company of errors in writing.

Finally, think twice about hiring a for-profit company to investigate or repair your credit. You can take many steps for free, and there are several nonprofit resources that can help. The FTC also warns against “imposter” credit reporting sites that come with strings attached.

For a complete copy of Edwards’ publication on credit, go to Know Your Credit.

Content contributed by KCSourceLink, a proud affiliate of U.S.SourceLink, America’s largest resource network for entrepreneurs.