Whether you run a large enterprise or a small business, there’s no doubt that you have big plans for what the future entails. While it comes as no surprise that you’ll need various types of funding to make those dreams a reality, there is something that can stop you in your tracks: a bad credit score.
It might sound dire, but thankfully not all is lost. The good news is that you can boost your credit score in just a few easy steps. It’s important to note, however, that raising your credit score can be likened to a marathon – not a sprint. That’s why it’s vital you start today.
Firstly, what is your credit score?
Put simply, your credit score is a three-digit number that reflects how likely you are to repay debt. This number is determined by your credit reports, which are pieced together by the three main credit bureaus – Equifax, Experian and TransUnion. These reports usually take information into account such as how often you make payments on time and how many accounts you have in good standing.
Although these scores usually operate within the range of 300 to 850, you’ll find that they can be broken down into the following categories:
- Excellent Credit: 750+
- Good Credit: 700-749
- Fair Credit: 650-699
- Poor Credit: 600-649
- Bad Credit: below 600
Banks and lenders use this number to decide whether they should approve you for a credit card or loan, therefore it really can make or break your chances of receiving funding for your SME.
How can I get my credit score and how do I know if I have a bad credit rating?
Here’s the thing: until you actually apply for small business funding options, such as a credit card or business loan, then you may not be aware of your bad credit score. Thankfully, you can get a free credit score check by contacting any of the following national credit reporting bodies (CRBs):
- Equifax Australia: Equifax.com.au (Phone: 1300 762 207)
- Dun & Bradstreet: CheckYourCredit.com.au (Phone: 1300 734 806)
- Experian: Experian Credit Services (Phone: 1300 783 684)
You are entitled to receive one free credit report from each of the three CRBs every year, and will simply need to provide the requested identification in order to do so.
With that in mind, here’s how you can boost your low credit score in as little as 5 easy steps.
1. Consolidate your credit card balances and keep them low
You may think having several smaller debts across multiple credit cards is better than having a larger debt on a single credit card, but this isn’t always the case, especially if all of those little debts add-up to be far greater. To assist with boosting your credit score, you should pay off those smaller debts and close the cards you no longer need. Then, opt to use just one or two main cards for everything. Not only does it make you seem more reliable, but it’ll also help you to keep track of repayments easily (an important factor in your credit rating).
2. Apply for a credit card (if you haven’t already)
Simply applying for credit cards that you don’t actually need won’t do your credit score any good, however it is worth noting that someone with no credit cards tends to be seen as a higher risk than someone who has managed credit cards responsibly. Therefore, having one credit card in your name can be beneficial, but only when you use it correctly. Don’t let balances or other ‘revolving credit’ turn into high amounts of debt owing, and always stay one step ahead of repayments. Remember, the earlier you pay, the better.
(Want to learn more? Here’s everything you need to know before you apply for a business credit card).
3. Fix your credit utilisation ratio
Your credit utilisation ratio simply refers to the amount of your credit card balance compared to the credit limit. This is the second most important factor taken into account when determining your credit score, with payment history coming in at number one.
Generally, a good credit utilization ratio is less than 30% and this means you’re using less than 30% of the total credit available to you. To keep this figure healthy, it is recommended that you reduce your credit card balances, refrain from new credit card purchases, or talk to your credit card issuer about increasing your credit limit.
4. Make repayments on time (and put systems in place to do so)
Even if your payments are just a few days late, they can still dramatically decrease your credit score. Making repayments on time (or better yet, early) can work wonders for improving your credit rating, so this is perhaps one of the most important things you can do. With the fast pace of daily life, it can be easy to forget about repayments or miss a bill deadline, but there are systems you can put in place to avoid this.
Many banks offer reminder services or alerts through their online banking portals or you can opt to have payments automatically debited from your bank account (for example, to pay off credit repayments). Just keep in mind that automatic payments will usually only pay off the minimal amount owing and therefore will not assist with dramatically boosting your credit score over time.
5. Check your credit report for any inaccuracies
Did you know that even the smallest of inaccuracies (such as a typo in your address) can negatively affect your credit score? Sadly, it isn’t uncommon for a credit report to contain a mistake, so it’s vital that you ensure this isn’t the case. As we mentioned earlier, every year you are entitled to a free copy of your credit report from each of the three main credit bureaus, so it’s a great idea for you to double-check these as regularly as you can.
You can also add a ‘notice of correction’ to your credit report if you feel as though something needs further explaining. For example, perhaps you fell on hard times financially during a difficult stage of your life (i.e. with poor health) but are now back on your feet again and on top of your repayments. You wouldn’t want a potential lender to hold this against you, so therefore, an explanation may be necessary.
Have you ever checked your credit score? We’d love to hear about your thoughts or experiences with credit ratings below.