Keeping Track of Your Credit Score
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Spring is in the air, but before you turn to cleaning up the garage or weeding out old files from your office, it's time to do a hearty spring cleaning of your credit history. Even if you're not currently in need of working capital, forecasting business cycles is always an imperfect science, so you never know when you'll need a cash infusion--or when one of your potential business partners or vendors will decide to check up on your credit.
Since what you don't know about your credit history can hurt you, the time to assess your credit is before you need it. "We get so many calls from entrepreneurs in distress because they were denied credit and they badly need working capital," says Lathea Morris, co-founder of the Credit Alternative Group, a Montclair, New Jersey, company that helps small businesses and individuals gain access to capital. "One of the first questions I ask is, Did you check your credit report before you applied for financing? I would have to say that 80 percent do not."
Now it's easier than ever to get the facts. As of September 2005, thanks to the Fair and Accurate Credit Transactions Act, consumers in all 50 states can get their credit reports for free each year from each of the three bureaus--Equifax, Experian and Trans-Union--by visiting www.annualcreditreport.com. Since your personal credit history is inexorably tied to your business, you'll want to review all three carefully, as well as pay to get your FICO credit score, well in advance of needing capital. Fighting inaccuracies and repairing credit can take time, says Howard Dvorkin, president and founder of Consolidated Credit Counseling Services, a nonprofit financial counseling agency based in Fort Lauderdale, Florida. "You're not talking a few days; you're talking a few months."
Once you have all three reports, scan all personal information for accuracy. "Something as simple as two numbers on your Social Security number being inverted could eliminate your chances of getting credit," says Dvorkin. Next, address any inaccurate late payments or charge-offs. Don't be afraid to call creditors and ask them to remove one-time late payments. If you're tenacious, "99 percent of the stuff can be removed," says Dvorkin.
If you can't have an item deleted, send an addendum to all three credit bureaus explaining the reason for the late payment. "It won't improve your score or get [the item] off there, but when lenders review your credit profile, they can take that into consideration," says Brad Stroh, founder and co-CEO of the Freedom Financial Network, a consumer debt resolution company in San Mateo, California.
Next, order up your small-business credit report from D&B. For $129, you can get a comprehensive analysis of your business's creditworthiness. For $329, you can sign up for D&B's SelfMonitor service and receive unlimited access to your business's report, as well as e-mail updates notifying you of any changes. "A lot of vendors and business lenders will review that," says Stroh, so you're better off finding out the information before they do. And to keep your personal credit as insulated as possible, Stroh also recommends asking to have any personally guaranteed trade lines or credit cards transferred solely to the business once your company gets a few good years under its belt.
Speaking of credit, there may be no better time than the present to take stock of your business's cash flow and outstanding balances to make sure you're not extending yourself too far. As of January, most credit card issuers have agreed to comply with guidance issued by the Treasury Department's Office of the Comptroller of the Currency and other regulators stating that cardholders should pay back more than their minimum payments to chip away at the principal. With interest rates rising, that could mean trouble for small businesses with big balances, says Stroh. "Entrepreneurs who were living month to month may really need to do a gut check now and [ask], Do I have the right financial game plan in place?"
The bottom line on your credit review: Even if it doesn't feel like a priority next to the pressing tasks related to running your business, make it one. Getting a clear look at your company's credit position today can help you not only address the past, but plan more accurately for a successful future.