Wondering how to fix your credit score? You’re not alone. Many people are unaware of what their credit report contains or even what their credit score is, despite it being a crucial factor in many life events.
If you’re dissatisfied with your current score, this article will guide you through the steps to improve it. Let’s dive in.
What Is a Credit Score?
A credit score serves as a numerical representation of an individual’s creditworthiness. This score is calculated based on various factors detailed in your credit report, which is usually sourced from credit bureaus like Equifax, Experian, and TransUnion.
The range for a standard FICO score extends from 300 to 850. A higher score signifies better creditworthiness and a lower risk for lenders, which can lead to more favorable interest rates and loan terms.
Why Business Credit Reports Are Important
Reports on your business credit are really important to a business. Here are just five reasons why this is so.
- Gives a complete picture. These reports offer a complete picture of the credit history of a business. This includes information on the business’s credit utilization, payment history, and public records.
- Helps assess risk. Credit reports can help business owners assess the risk of doing business with another company. This information can be used to make informed decisions about whether or not to extend credit.
- Evaluates financial health. Credit reports can also be used to evaluate the financial health of a business. This information can be used to make decisions about whether or not to invest in a company.
- Detects fraudulent activities. Credit reports can help business owners detect fraudulent activities. This information can be used to make decisions about whether or not to pursue legal action against a company.
- Builds business credit history. Credit reports can also help business owners build a history of credit for their business. This information can be used to get loans, lines of credit accounts, and other forms of financing in the future.
- Read More: How to Get a Business Loan with Bad Credit
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What’s a ‘Good’ Credit Score?
A credit score of 700 or above is generally categorized as ‘good’ or ‘excellent.’ This indicates that the individual has a history of responsible credit management, including timely payments and judicious handling of debt, making them a less risky proposition for lenders.
Downsides of Having a Poor Credit History
Your bad history with credit can follow you around for a long time. Here are five downsides of having a bad credit report as a small business.
- Can’t get loans. You’ll have a hard time getting loans when you have a poor score. This is because lenders will see you as a high-risk borrower. They’ll be hesitant to give you a loan because they don’t think you’ll be able to repay it.
- Higher interest rates. You could be paying higher interest rates on your loans, lines of credit, and credit card balances if you have bad credit. This is because lenders will charge you a higher interest rate to offset the risk of lending to you.
- Can’t get a business credit card. It can be difficult to get a business credit card with low credit scores. This is because most business credit cards require a personal guarantee. If you do get a business credit card, it will most likely have a low credit limit.
- Difficulty renting office space. You may have a hard time renting office space if you have bad credit. This is because landlords will pull your credit report when you apply for an office lease.
- Your business could be blacklisted. If you have bad credit, your business could be blacklisted. This means that other businesses will be reluctant to do business with you because they don’t want to be associated with a company with a bad history of credit.
How to Fix Your Credit Score with the Credit Bureaus
Let’s discuss several ways how you can fix your score with the different credit bureaus.
1. Get Your Free Credit Report
Obtaining your free credit report is a critical first step in understanding and improving your credit score. Under federal law, you are entitled to a free credit report every 12 months from each of the three major credit reporting agencies: Equifax, Experian, and TransUnion. This can be easily done through AnnualCreditReport.com, the only authorized online source for free credit reports. If you prefer, you can also request your reports by phone or mail, which is a useful alternative if you encounter any issues with online verification or if you prefer having physical copies for your records.
Once you access your reports, it’s important to make a habit of regular monitoring. Your credit report encompasses a range of financial information, including the history of your credit accounts, payment history, current debts, and personal information. By regularly checking your credit report, you not only keep track of your financial health but also protect yourself against identity theft or any fraudulent activities. This consistent monitoring enables you to identify and address any issues that may arise, ensuring that your credit score is a true reflection of your creditworthiness.
2. Check for Errors
After you have obtained your credit reports, the next crucial step is to meticulously review them for any possible errors. Mistakes on credit reports are not uncommon and can range from simple errors in personal information to more significant issues like incorrect account details or payment histories. Even minor inaccuracies can have a substantial impact on your credit score.
If you do find inaccuracies, remember that you have the right to dispute these errors. This process involves directly contacting the credit bureau that issued the report as well as the creditor who provided the inaccurate information. Disputing errors on your credit reports is a free process. You should provide as much evidence as possible to support your claim, such as bank statements or legal documents.
The credit bureau is required to investigate your dispute, typically within 30 days. It’s important to keep track of the dispute process and be prepared to provide additional information if necessary. Successfully correcting errors on your credit report can lead to a significant improvement in your credit score, especially if the errors involve key aspects of credit scoring like payment history or credit utilization.
3. Pay Your Bills on Time
Timely payment of bills, including credit cards, utilities, and other forms of debt, is a cornerstone of good credit health. Establishing a consistent track record of on-time payments will positively influence your payment history, which is a major factor in calculating your credit score.
4. Reduce Your Debt
Improving your credit score often involves enhancing your credit utilization ratio by paying down existing debt. Effective budgeting and, in some cases, debt consolidation can be strategies to manage and reduce your overall debt, thus potentially improving your credit score.
5. Use a Credit Repair Service
If you find it challenging to navigate the intricacies of credit repair on your own, you might consider enlisting the help of a professional credit repair service.
Such companies can assist you in disputing errors on your credit report and negotiating with creditors to remove negative entries, thereby improving your credit score.
6. Get a Secured Credit Card
For those with poor credit or no credit history, a secured credit card—backed by a deposit in a savings account—can serve as a stepping stone to rebuild or establish credit.
7. Become an Authorized User
Being added as an authorized user to a credit account belonging to someone with good credit can help bolster your credit score. This means that the account history associated with the primary cardholder will also reflect on your credit report, enhancing your credit profile.
8. Get a Co-Signer
If securing a loan independently proves difficult, having a co-signer with good credit can help. The co-signer essentially guarantees the loan, pledging to take responsibility for the debt if you default.
9. Use a Credit Builder Loan
Credit builder loans are a unique type of installment loan designed to help you build or improve your credit. The loan amounts are generally small and are meant to be paid back over a predetermined period, demonstrating your ability to manage debt responsibly.
10. Use a Secured Loan
A secured loan requires collateral—assets like a car or home—that can be seized by the lender if you default on the loan. While riskier for the borrower, these loans can be easier to obtain and can assist in building or improving credit if managed wisely
- Read More: 6 Business Credit Cards for Bad Credit
What Is the Fastest Way to Repair Your Credit Report?
The time it takes to repair your credit report is subject to individual circumstances, and no singular method can be universally applied as the fastest solution.
Nonetheless, a few general recommendations can expedite the process of improving your credit score.
These include paying all your bills punctually to avoid late fees and penalties, sustaining a healthy credit history by utilizing your credit cards judiciously, and focusing on debt reduction strategies.
Additionally, promptly disputing any errors on your credit report can also result in a quick improvement of your credit score.
Is It Worth Paying Someone to Fix Your Credit?
Credit repair companies often claim to offer swift solutions to improve your credit score and charge considerable fees for their services.
It’s crucial to exercise caution and do your due diligence before engaging such companies, as there are no guarantees that they can significantly elevate your credit score to your desired level.
Often, the steps they take can be undertaken by individuals at no cost.
For this reason, it’s generally advisable to first attempt repairing your credit on your own, using the various resources available for free or at a low cost, before considering paid services.
Comparison of Methods to Improve Your Credit Score
In the complex world of credit management, both for individuals and businesses, understanding your options and their impacts is crucial.
To simplify this, we present a comparison table below that outlines various methods for improving credit scores, along with their pros, cons, and recommended scenarios
|Get Free Credit Report
|Free, gives you a starting point
|Doesn't improve score directly
|Check for Errors
|Can quickly boost score if errors are found
|May require time and effort
|If your report has inconsistencies
|Pay Bills on Time
|Steady, long-term improvement
|Requires financial discipline
|Improves credit utilization ratio
|Requires budgeting and financial discipline
|High debt-to-income ratio
|Use Credit Repair Service
|Professional help, potentially faster results
|Can be expensive, no guarantees
|Complex credit issues
|Get Secured Credit Card
|Builds credit history
|Requires a cash deposit, low credit limit
|Poor or no credit history
|Become an Authorized User
|Quick way to gain good credit history
|Reliant on primary cardholder's good credit habits
|Poor or no credit history
|Get a Co-Signer
|Allows you to get a loan or credit card
|Puts financial strain on co-signer
|If denied credit independently
|Use Credit Builder Loan
|Builds credit history
|Interest costs, requires repayment
|No existing loans or credit history
|Use Secured Loan
|Can get approved easily
|Risk of losing collateral
|If you have valuable collateral
- What is a Business Credit Score?
- What is a Business Credit Bureau?
- How to Build Business Credit
- How to Get a Small Business Loan