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Note: This article was originally published on OPEN Forum.For many small-company owners, especially those who haven’t been in business for that long, your personal credit score is the key to getting anything from a bank loan to a lease.
“It’s simply crucial to finding financing,” says Gerri Detweiler, credit advisor at Credit.com and author of Business Credit Success (Success Publishing, 2010).
For that reason, before you even approach a bank, you need to figure out what your credit score is and how you can boost it.
Here are a few steps you should take when starting this process.
The first step is to get a free copy of your credit report from Experian, Equifax and TransUnion, the three major credit bureaus. Then, look it over and make sure the information is accurate. If you find a mistake and you have documentation to back up your side, put your dispute in writing, including a copy of the paperwork.
Generally, positive information remains on your report indefinitely, while negative data stays for seven years. An exception is a tax lien, which remains for 10 years. And if you've fallen behind on a student loan but bring yourself up to date, the negative history will be deleted.
But you also need to get your credit score, a number that classifies just how good or bad a credit risk you are and is determined by a formula. The most widely used score is called FICO and it ranges from 300 to 850. You can order your score from the credit bureaus' websites, though they're not free.
Another part of your score is determined by the amount of debt you owe. And the closer you are to your credit limit, the worse it is for your score. (You won't be penalised in the same way for carrying a balance on charge cards, since they don't have a credit limit.) Remember: timing is everything. Even if you pay in full every month, credit reports capture information on the day a transaction is reported. So, if you haven't paid for that billing cycle, the balance will be factored into your score--and lower the total.
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