Did you know that your personal credit score is also a factor of your business credit score calculation? That means improving the former could help improve the latter, too. Less-than-perfect personal credit doesn’t have to be a scarlet letter you wear on your chest for the rest of your life. Personal credit scores can be repaired. You can start with the 5 strategies below. #1. Monitor Your Credit Report Closely According to the Fair Credit Reporting Act, your credit agency is required to show you your credit report at least once a year at no charge. Take full advantage of that right. Why? You may have credit dings you don’t know about or that don’t belong on your credit report. You have the right to challenge them and request they be removed. How do you do this? Start by going through your credit report each year -- and be thorough. Even a few inconsistencies can add up quickly and could be the difference between a red flag and a green light for funding. #2. Target a 10% Balance How much can you put on your credit card? If you're trying to improve your credit, experts advise keeping that balance at 10%. So if your card limit is $5,000, a balance of $500 or less would maximize your credit score. Why? Credit cards account for 30% of your personal credit score. Without an active credit card, you’re missing a gigantic portion of your score. At 0−7% balance to limit ratio, the credit agencies will see a lack of recent revolving credit. This could make them think you don’t have experience with credit cards. To them, it would be like hiring someone with no employment history for a job. Anything above 10% will chip away at that 30% of the overall credit score affected by credit cards: A 10−30% balance takes away up to 10% A 30–50% balance takes away 10−25% A 50−90% balance takes away 25–90% Of note, credit card records update monthly, so you can swing your credit score substantially by paying maxed out credit cards down to 10% utilization in a month. But… If you're thinking about applying for a new card and maintaining a low balance, proceed with caution: you won't want to apply for a lot of new credit at the same time. The reason for this has to do with “credit inquiries” or "credit checks" (also called a "credit pull"), which is the term used when a lender, broker, partner, or vendor checks your credit score. A “hard inquiry” is what you want to avoid when trying to rebuild credit because each one negatively impacts your credit score. The less credit you apply for, the fewer hard inquiries your credit score will show. BTW, if you have store credit cards, consider the following: using a store credit card at least once every 6 months allows it stays active. If the issuer deactivates the card, a credit check may be needed to reactivate it, which could constitute a hard inquiry, too, although the impact to your credit score may not be as great. Also, hard inquiries drop off your credit report after two years. #3. Smartly Use the Credit You Have If you have an unused credit account like a personal line of credit, you may use that to boost your credit score, too. Why? Your credit history is an average of all your open and active credit accounts. A good credit history with credit—any credit—can positively impact your score. If you have a line of credit that you've not used, consider paying expected expenses with it and then paying back the line of credit with the money you already put aside in your checking account to pay those bills. Also... Did you know that opening a new store account, like a Macy's or Kohl's card, to save 10% could drag down your score? If you have a lot of old credit cards and a couple new credit cards, consider closing the new cards to boost your length of credit history. Fifteen percent of your score is based off the average length of all your open and active accounts. When you introduce new accounts it adds 0-year accounts to the profile, which can also cause a score to drop. # 4. Keep Debt Levels Low Debt doesn't always lower your score, but it can if your debt financing ratio is too high. There are several ways to effectively pay down business debt, including eliminating excess costs, restructuring debts through a third party, and formulating a payback plan. Additionally, you should always be aware of your current financial situation and adjust your budget for unexpected changes in cash flow. Keeping your debt levels low will improve your business credit score and allow lenders to see that you're in control of what you owe and can pay off expenses before the due date. The lower your debt, the less risky lending to you may seem. #5. Piggyback Off Someone Else’s Good Credit Have someone you know add you as an authorized user of their credit card. You’d have to ask the person to do this, and if they agree, they would add you, receive the credit card in your name linked to their account, and pass it off to you. Why? Because you can gain a ton of credit history. Credit history is important because it’s a huge contributor to your credit score. As an authorized user of someone else’s account, their good credit is factored into calculating your credit score. Think of it as an endorsement. But… It’s only a good endorsement if the person giving it has good credit, so choose the person wisely. Who should you consider: someone who keeps a low balance and pays their bills on time. Spouses and family members may be the most open to this idea. Also… Do everything right! Just as you will benefit from the person’s good habits, that person can take a credit hit if you abuse the authorization you’ve been given, so treat it with respect (remember, they're still on the line for all charges). And don’t get yourself authorized on too many accounts. Credit agencies will flag that as you artificially raising your score. #6. Pay Bills on Time Paying your bills on time is by far the best thing you can do to rebuild less-than-stellar credit. Why? It shows that you can handle debt and be trusted with someone else’s money. But… Credit agencies are notified when you have a bill outstanding for more than 30 days. They call it a delinquency, and it will stay on your credit report for 7 years, depressing your score the whole time. For example: If you had a 30-day late payment reported in June 2022 and you cleared the account in full by July, it would stay in your report until June 2029. The bad news is that you won’t be able to get back to perfect until then, even if you do everything right. #7 Watch out for Risk Indicators Credit card issuers like customers with consistent spending and paying behaviors. This is why you must be careful about risk indicators like skipping payments or paying less on your balance than you typically do. If you’re making large purchases, or spending on services like a divorce attorney, or a real estate selling agent, these could also be indications of upcoming financial trouble. Before deviating from your normal spending patterns, think about how they’ll look on your credit report. Disclaimer: The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.