Increasing Your Personal Credit: A Guide for Entrepreneurs

Personal credit is (or will become) critically important to everyone – especially small business owners. Below, we share some actions you can take to effectively improve and monitor your personal credit along your entrepreneurial journey.

Get a Major Credit Card and Use It Responsibly

As strong payment history speaks volumes to lenders, making timely payments on your credit card can increase your credit score, credit limit, and financial access. A major credit card is a powerful tool for building credit when used wisely.

Make small, regular purchases: Use your credit card for everyday expenses like groceries or gas and pay off the balance in full each month.
Keep utilization low: Aim to use less than 35% of your credit limit to show responsible credit management.
Set up payment reminders: Use calendar alerts or financial apps to remind you of upcoming due dates to avoid late payments.

Interesting Fact: According to Experian, individuals with a FICO score of 800 or higher have an average of three open credit cards, highlighting the importance of responsible credit card use.

Avoid Late Payments

Make your finances as predictable as possible by setting up automatic payments for all your bills, loans, and credit card payments. You’ll be surprised how efficient the predictability and peace of mind allow you to be.

Automate payments: Set up auto-pay for all recurring bills and loan payments to avoid missing due dates.
Monitor account balances: Regularly check your accounts to ensure there are sufficient funds to cover automatic payments.
Prioritize high-impact payments: Focus on making timely payments for accounts that report to credit bureaus.

Interesting Fact: Late payments can remain on your credit report for up to seven years. However, their impact on your credit score diminishes over time with consistent, timely payments.

Frequently Check Your Credit Reports

Regularly check your Equifax, Experian, and TransUnion credit reports to ensure your good payment history is being reported, and that any inaccuracies are disputed. Fraudulent activity, mistaken accounts, and anything negatively impacting your personal credit need to be removed as soon as possible.

Get free annual reports: Use AnnualCreditReport.com to obtain free credit reports from all three major bureaus once a year.
Look for errors: Verify that all information, including payment history and account balances, is accurate.
Dispute inaccuracies: Contact the credit bureaus to correct any errors or fraudulent accounts promptly.

Interesting Fact: The Fair Credit Reporting Act entitles you to one free credit report per year from each of the three major credit bureaus. Utilize this to keep your credit history accurate and up-to-date.

Dispute Bankruptcies and Unfavorable Credit Reporting

Dispute bankruptcies and unfavorable credit reporting older than 7 to 10 years. Most of these reports are meant to be removed beyond these time-frames but are not due to inefficient automated processes. Take it upon yourself to check periodically and ensure the most accurate reporting.

Understand reporting limits: Bankruptcies should be removed after 10 years, while most other negative items should be removed after 7 years.
File disputes: Use the credit bureaus' online dispute systems to challenge outdated or incorrect items.
Keep documentation: Maintain records of all disputes and correspondence with the credit bureaus.

Interesting Fact: Nearly 25% of Americans have errors on their credit reports. Regularly disputing these inaccuracies can significantly improve your credit score.

Don’t Close Accounts

Don’t close accounts or allow them to be closed, as this may negatively impact your credit scores. Using inactive cards from time to time illustrates that you leverage finance responsibly and are not credit-reliant. Additionally, if you can consistently use under 35% of your credit limit(s), your personal credit score will rise quicker.

Keep old accounts open: Even if you don’t use them frequently, maintaining older accounts can positively impact your credit history.
Make occasional charges: Use inactive cards periodically for small purchases to keep them active.
Monitor utilization rates: Keep your credit utilization below 35% to improve your credit score.

Interesting Fact: The length of your credit history accounts for 15% of your FICO score. Keeping older accounts open can positively impact this portion of your score.

Consider Installment Loans

As installment loans score better than credit card balances, consider consolidating any longer-term debts with cash-flow-friendly refinancing that will gradually increase your personal credit profile.

Consolidate high-interest debt: Use installment loans to pay off high-interest credit card balances.
Make consistent payments: Ensure timely payments to build a positive installment loan history.
Compare rates and terms: Shop around for the best loan terms to maximize savings and improve your credit profile.

Interesting Fact: Installment loans, such as auto loans or mortgages, demonstrate to lenders that you can manage different types of credit responsibly, contributing to a better credit mix which makes up 10% of your FICO score.

Avoid Unnecessary Credit Applications

Do not apply for unnecessary credit! Each filed application may lower your credit score, so ask as many questions to determine your eligibility and financial prospects before completing one. Are you eligible for more credit? Do they conduct a soft or hard credit inquiry? Get answers to these questions upfront to avoid unnecessary credit damage.

Limit applications: Only apply for credit when necessary and when you’re confident of approval.
Ask about inquiries: Determine if the lender will conduct a hard or soft inquiry before applying.
Space out applications: Avoid multiple applications in a short period to minimize the impact on your credit score.

Interesting Fact: Each hard inquiry can lower your credit score by a few points and remains on your credit report for two years. Avoid multiple applications in a short period to maintain your score.

Get a Secured Credit Card

If you have limited or poor credit history, a secured credit card can be a valuable tool for building or rebuilding your credit. A secured credit card requires a cash deposit as collateral, which typically becomes your credit limit.

Start with a reputable issuer: Choose a secured card from a well-known bank or credit union to ensure it reports to all three major credit bureaus.
Make a reasonable deposit: Your deposit will be your credit limit, so start with an amount you can afford and manage.
Use it like a regular credit card: Make small purchases and pay off the balance in full each month to build a positive payment history.
Monitor your progress: Track your credit score improvements over time and consider upgrading to an unsecured card after demonstrating responsible use.

Interesting Fact: According to the Consumer Financial Protection Bureau, secured credit cards can help improve credit scores within six months of responsible use. They are an excellent option for those starting out or rebuilding their credit.

Conclusion

Taking these measures can help entrepreneurs manage their credit most effectively. By establishing a combination of strong personal and business credit, entrepreneurs can access the best financing options available.

Ready to take control of your personal credit? Get offers today! Fill out an application with Approvd and discover the best funding solutions for your business. Want to learn more about building business credit? Check out our article “We Mean Business… Credit!” and visit our Approvd blog page for more business, credit, and financial insights.

About the Author

With over 20 years of experience in the business loan marketplace at Approvd, our expert has helped countless small business owners navigate the complexities of securing the right funding. Passionate about empowering entrepreneurs, our expert combines industry knowledge with a deep understanding of the challenges faced by small businesses today.

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