Your credit score. It’s there when you need it, but it’s not always where you need it be. Credit scores are buried in the back of our minds until a funding need arises — whether that be to purchase home or car, and when applying for a loan for your small business. Late payments, high balances, and inaccurate account information can create a black cloud over your credit score. The good news is that your score is repairable.
First, it’s important to understand that there are five key areas that make up your FICO Score. The relative importance of each category - and how your overall score is calculated - is reflected below:
Check out this post that explains what constitutes a “good” credit score (Able’s minimum FICO score is 600). Now, let’s focus on simple ways to repair your credit.
Step 1: Check your credit report once every quarter and dispute errors.
- Late payments: Look for late payments incorrectly listed for any of your accounts.
- Card balances: Look for account balances incorrectly listed.
- Trade lines: Look for lines you don’t recognize.
If you find errors on your report, dispute them with all three national credit bureaus immediately.
Pro tip: Call the bureaus for faster attention to errors. They have to process disputes within 30 days, but a call can help the process. It usually takes several calls, being on hold, and demanding that the information be corrected.
Step 2: Always pay on time.
According to our partners at Nav, the best thing you can do for your credit score is to make sure you always pay on time. Simple in theory but when you’re a small business owner, juggling payment due dates can be easy to forget.
Pro tip: Set up payment reminders each month, or automatic payments through your bank. Are you having trouble making a payment on a high-interest, short-term loan and credit cards for your business? Refinance your existing debts with Able to free up cash flows and save $5,000 a month on average.
Step 3: Update your account balances.
The name of the game is to pay down the cards with higher interest rates first and convince your credit card company to immediately & manually update the new account balances and report them to Experian.
Normally, all balances are updated at the end of the month. So, if you pay down the card, you will have to wait until the end of the month for the information to update. Some credit card companies, like Chase, will manually update the balances before the end of the cycle as a courtesy to their customers.
The second piece is to call up Experian and make sure they received the updated account balances. Although many times they will just tell you it takes 24 hours to update.
Pro tip: Be bullish. If the credit card company won’t manually update your balance, ask about their “rapid rescore” service (this is a perk of signing up with Nav’s premium membership). Know you will pay an additional fee to have someone manually update the data so that it can be rescored immediately with the new information in the history. However, this could turn a “no” into a “yes” for a loan approval making the ROI worth it.
Step 4: Keep your credit cards open
This might seem counter intuitive, but keeping your credit cards open helps your score by showing historical data about your activity as a borrower. The length of your credit history accounts for 15% of your total score. While it may be tempting to close your accounts after finally paying them off, it could do more harm to your credit than good.
Pro tip: Keeping your cards open is only half of the strategy. Be sure to keep your cards active by using them monthly for nominal purchases like a cup of coffee or tank of gas. Keeping your account open costs the credit card company money. If you stop using your card, they may stop reporting the history of your card to credit bureaus, which may hurt your score.