We’ve talked about collateral, capital, and capacity. Today we’re going to talk about the single most important metric by which your credit worthiness is judged and is a big part of determining whether or not you get a small business loan. It’s number two on our list of “C”s:

1. Character
2. Credit Score
3. Capacity
4. Capital
5. Collateral

On the list of five “C”s your credit score is listed as number two, but in reality, it should probably be listed as number one. Although there is hope for business owners with less than stellar credit, the options come at a cost. What’s more, on Main Street, most bankers are just as interested in your personal credit rating as they are  your business rating (sometimes even more). With that in mind, here are a few pointers from Liz Weston and MSN Money:

1. “You can’t raise your scores if your finances are still in free fall.” It’s not uncommon for small business owners to rob Peter to pay Paul to keep the doors open. If you’re unable to pay your bills on time, you can’t fix your credit. You’ll likely have to wait until the immediate financial crisis is over before you can attempt any real credit repair.
2. “You can’t raise your score if you don’t use credit.” Although cutting up all your credit cards and paying cash for everything might sound like the best idea, your credit score is a reflection of how well you use credit, not how well you avoid using it. If you stop using credit altogether, your credit reports won’t even generate a credit score.
3. “You don’t have to pay credit card interest to achieve great scores.” Using your credit card is not the same as carrying a balance on the card. The trick is to pay off the balance as soon as the card comes in. Don’t use your credit cards to purchase something you can’t buy otherwise, treat your credit card the same as cash and pay off the balance the instant you get the bill.
4. “You can’t expect overnight results.” If you paid down a substantial portion of your credit card debt today, you might start seeing some results in 30 days, but credit repair takes time and depends on the nature and details of what’s on your report. If you have a lot of negatives like bankruptcies or foreclosures on your report, you’ll have to wait until those drop-off.

Here are a few suggestions to increase your score:

1. Monitor your credit reports: Make sure the information is correct and that your credit report reflects reality. Make sure accounts that aren’t yours aren’t reported. Make sure the report is accurate. Bankruptcies over 10 years or the associated accounts shouldn’t be reflected on the report. Other negative information older than seven years shouldn’t be on there either. Equifax, Experian, and TransUnion are where you’ll want to go to see your current credit reports.
2. Get a major credit card: You’ll need to get a MasterCard, VISA, Discover, or American Express to start building your credit into the 700+ range. Remember, you need to wisely use credit to build more credit.
3. Arrange automatic payments on every card or loan: It’s easy to forget to make a payment when it’s due or let travel or a busy schedule distract you. Credit scores are very sensitive to whether or not you make payments on time.
4. Don’t let disputes go to collections: If you have a dispute with a vendor and you allow it to escalate to collections, it doesn’t look good on your report. Pay under protest and go to small claims court. Don’t get sued, though, lawsuits and judgements are also major dings to your credit.
5. Consolidate your debt if you can’t pay it off quickly: The scoring criteria treats installment loan balances kinder than the same balances on a credit card. But be wise with your credit card balances and avoid running them up.
6. Take debt off your credit report entirely: This is a tough one, but family, friends, or dipping into your retirement plan is sometimes a good way to get credit off your report entirely. Be careful with dipping into your 401k. If you change jobs without paying the balance, there are tax consequences.
7. Don’t close accounts or let them be closed: It might not help your scores and could hurt them. If you’ve got a card you haven’t used for awhile, take it out to dinner or buy a tank of gas, just make sure they’re included with your other automatic payments.
8. Don’t apply for credit you don’t need: At about 5 points an application, if you have sketchy credit, it can add up.

Depending upon how bad your credit looks today, you might need to spend some time working on your credit. However, these tips will give you a head start.