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Understanding Credit Scores: How to Repair Your Credit

Whether you’re looking to repair your credit in the short-term or the long-term, just know that there is no quick way to fix your credit score. It’s going to take time. Ultimately, the only way to repair your credit is to pay your bills on time, pay down debt over time, and limit applying for new credit.

But just because it takes time to repair your credit doesn’t mean it’s not worth it. 

The impact of past credit problems eventually fall off your record, and recent good payment patterns show up on your credit report. Your credit score will weigh any past credit problems against current positive information that means you’re managing your credit well.

Knowing how to repair your personal credit can impact your business decisions as well. Many business lenders assume if you have a good personal credit score, it means you will also be able to handle your business finances well. To learn more about how your personal credit affects your business, take a look at this article

Getting Started

If you’re looking to repair bad credit, start by looking at your credit reports to get a sense of where you stand. Here are a few organizations that allow you to check your credit for free:

Here’s a breakdown of what your scores mean:

  • 300-579: Very Poor
  • 580-669: Fair
  • 670-739: Good
  • 740-799: Very Good
  • 800-850: Exceptional

Fix Any Errors

Once you get a hold of your credit reports, make sure you review them carefully for errors. Sometimes your credit information doesn’t get entered correctly because of a simple mistake on a form like your name or address. 

Errors can affect your credit score, which could also affect your ability to secure personal or business loans. As you move forward and open new lines of credit in the future, make sure you are consistent with your name and other personal information. It can be helpful to use your full first name and your middle initial to help ensure that reports are being connected to you rather than someone with your name. 

Here are some other common errors to watch out for:

  • Accounts that don’t belong to you
  • Duplicate accounts, making it appear you have more open lines of credit or higher debt than you actually do
  • Old accounts 
  • A former spouse’s debts reflected in your report when they shouldn’t be

To ensure mistakes are corrected as quickly as possible, contact both the credit bureau and organization that provided the information to the bureau. This webpage from MyFICO can direct you to the appropriate bureau.

Before you contact the credit bureaus, gather any information that you have to back you up, such as copies of bank account statements. 

On-time Payments

Making your credit payments on time is one of the biggest contributing factors to your credit scores. The longer you pay your bills on time after being late, the more your credit score should increase. That is, of course, easier said than done. 

One helpful tip to help ensure that you’re making your payments on time is to set up payment reminders. Some banks offer payment reminders through their online banking portals that can send you an email or text message reminding you when a payment is due. 

Life gets hectic, especially life as a small business owner, so you’re bound to forget payments every once in a while. So, if you’re in a position to do so, you could also enroll in automatic payments through your credit card or loan providers to have payments automatically paid out from your bank account. This can be helpful so you can “set it and forget it.” 

Length of Credit History 

If you have a bad credit history, your business will not be approved for new loans or may have to pay higher interest rates because of your personal credit score and credit history.

Since your credit score largely has to do with the length of time your lines of credit have been open, it’s a good idea to pay off your new, high-interest, credit accounts first. But that doesn’t mean shifting your debt around. In fact, owing the same amount but having fewer open accounts may lower your scores.

Similarly, don’t open a number of new credit cards that you don’t need, just to increase your available credit. This approach could backfire since new accounts will lower your average account age. As a general rule, you should limit credit applications to no more than two every six months. Know that checking your own score doesn’t count toward your limit.

Some people who are trying to repair their credit believe that they should close every account they have, but if you have credit cards that you don’t owe on and don’t use, it’s actually advantageous to keep them open. As long as you aren’t accruing more debt on an old card, it adds increases your overall average credit history.

Seek Credit Counseling 

If you’re really having trouble, you might consider seeing a credit counselor. They can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Using a credit counselor won’t directly repair your credit, but by learning to responsibly manage your credit, your score should increase over time. 

If you need assistance choosing a credit counselor, this article from the FTC can help you in your research. 

For small businesses to have the best chance at success, you need to have access to the best opportunities available to you. And since your personal credit score will be taken into account on numerous business financial levels, repairing your credit is crucial.

If you’re a business in Marion County, the Build Fund, operated by King Park, may be able to connect you to flexible, affordable, and responsible funding options for your business. Start the process now!

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