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Improving Your Personal Credit
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February 16, 2024
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woman with laptop in home office for working on personal and business finances

For aspiring business owners, the financial health of their personal credit plays a pivotal role in shaping their company’s future. Establishing and maintaining good credit is a strategic imperative. A poor credit score means you will pay higher interest rates on financing purchases and insurance premiums, making it very difficult to access funding and start your company.

You should review and, if necessary, fix your personal credit score regularly. 

What Is a Good Credit Score?

Various factors are used to calculate personal credit scores. The most important are payment history and credit utilization (the percentage of your credit limit you are using). The FICO score, ranging from 300 to 850, is the model most commonly used by the three major credit bureaus: Equifax, Experian, and TransUnion.

According to FICO, scores of:

  • Less than 580: Poor.
  • 580 to 669: Fair. 
  • 670 to 739: Good.
  • 740 to 799: Very Good. 
  • 800+: Exceptional.

Why it’s Important to Have a Good Personal Credit Score

There are numerous benefits to having a strong credit score:

  1. Credibility and Trustworthiness
    Personal credit history is typically one of the first indicators lenders, suppliers and partners examine when evaluating your business. A solid personal credit score reflects your financial responsibility.
  2. Access to Financing
    Your credit score significantly impacts your ability to secure financing for your business, especially in the early stages. A strong personal credit history makes it easier to get business financing and helps you qualify for loans and lines of credit.
  3. Better Loan Terms and Interest Rates
    A higher credit score often translates into more favorable terms and lower interest rates on personal loans. This saves money and eases the financial burden associated with personal debt.
  4. Vendor Relationships and Trade Credit
    A positive personal credit history can influence vendors’ decisions to extend favorable trade credit terms. This is particularly relevant for small businesses that rely on timely payments for supplies and materials.
  5. Future Business Opportunities 
    A solid credit history can lead to new business opportunities. Investors, partners, and clients often view a solid personal credit score as proof that you are fiscally responsible.

In addition, a strong credit score typically earns you more favorable rates on your business insurance policies. 

How to Improve Your Credit Score

Improving your credit score requires different strategies, but some general principles apply to both. Here are some tips for improving your credit scores.

  • Pay bills on time. This is the single most important factor affecting your credit score. Make all payments to service providers, suppliers and other creditors on or before the due date.
  • Monitor your credit reports. Check your credit reports regularly for errors or fraudulent activity. Dispute any errors or inaccuracies immediately.
  • Diversify your credit mix. Having a combination of credit types, such as credit cards and lines of credit, can boost your credit score. Paying down mortgage and car loans has a positive impact.

If you are rebuilding your credit:

  • Be patient: Building good credit takes time and consistent effort. 
  • Set realistic goals: Start with small, achievable goals.
  • Seek professional help: If you need additional guidance for fixing your credit, consider seeking help from a reputable credit counseling agency. 
  • Reduce your credit utilization ratio: Aim to keep your credit utilization below 30%. Pay down your credit card balances and avoid opening unnecessary new lines of credit.
  • Use lower interest rate credit cards: Once you establish a strong credit rating, apply for a credit card with a lower interest rate to save money on interest charges.
  • Avoid excessive credit inquiries: Too many credit inquiries in a short period can negatively impact your score. Only apply for credit when necessary.

Building and maintaining good personal credit is a strategic investment in your long-term success.

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National Bankers Association Foundation

The National Bankers Association Foundation’s mission is to eliminate the racial wealth gap by ensuring underserved communities have fair access to transformative financial education, services, and resources. To accomplish this, we support the work of Minority Depository Institutions (MDIs) through our four strategic pillars, which include: Financial Education, Entrepreneurship and Small Business, Research and Impact, and Collaboration and Capacity Building.

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Copyright © 2023 SCORE Association, SCORE.org

Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

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