New Year's resolution: good credit | Tips to get your business score where you want it
Director of training and communications, Maine Small Business Development Centers
The past year’s economy has been challenging for many small businesses navigating what Stephen H. Covey calls “perpetual white water.” The turbulent times have swamped some and battered others. For battered small businesses whose good credit has suffered, the year-end provides an excellent time for a New Year’s resolution to rebuild credit and improve credit ratings. Even for those who fared well in 2009, it’s timely to review practices and strategies for good credit in the year ahead.
A poor credit rating costs small businesses money. Maine Small Business Development Centers’ certified business counselors help small businesses strategize for profitability; one’s credit standing has to be part of the strategy. It’s never too late to become credit worthy but the process can take some time. Here are five steps to get started.
1. Order your credit reports.
The good news is that federal and state law entitles Mainers to one free credit report from each of the top three credit bureaus, including Equifax, Trans Union and Experian. The Federal Trade Commission’s website (www.ftc.gov/freereports) and the state’s Bureau of Consumer Credit Protection website (www.credit.maine.gov) provide all the details. The important thing to remember is that www.annualcreditreport.com is the only authorized source by which people can get a free annual credit report under federal law.
2. Review your credit reports.
“It’s a good idea to get all three free credit reports,” says Rod Thompson, Maine SBDC certified business counselor, “because they can vary.” Thompson, who conducts credit repair workshops in Aroostook County, says creditors are not required to report to all three credit bureaus. The credit bureaus, in turn, are not required to verify the accuracy of the information. That’s why it is so important to carefully review your reports to ensure that the information there is accurate and up-to-date. At the very least, if a small business owner sees inaccurate information, the credit reporting agency and information provider should be contacted.
The website www.bankrate.com has an excellent primer on how to read the four basic sections of a credit report.
3. Dispute credit errors.
Beyond reporting inaccuracies, a small business owner may also want to formally dispute a credit report. Dispute forms are provided with the credit reports. In addition, the FTC has an excellent Focus on Credit fact sheet that includes a sample dispute letter (www.ftc/gov/credit).
Maine residents are additionally supported in this effort by state law. To correct faulty information on credit reports, they can contact Maine’s Bureau of Consumer Credit Protection (www.credit.maine.gov), which must complete an investigation within 21 days. If information is proven to be incorrect or cannot be verified, the credit bureau must remove it from a credit report.
4. Solve debt.
“Developing a spending plan is essential to solving your debt issues,” says Thompson. Developing detailed cash flow and other financials will help. The goal is to reduce debt while ensuring on-time payments to creditors. Maine SBDC has tools that may help on its website, www.mainesbdc.org, under its Topic of Interest heading in a section called Surviving a Downturn.
Negotiating with creditors to keep accounts current or from being reported as delinquent or bad debt is another strategy. Small business owners may ask for reduced monthly payments or revised due dates. “It’s not uncommon for someone to avoid contact with the creditor when things get tough,” says Thompson, “but the key is to stay in communication.” Keep careful records of all communications, he advises, including dates and names.
According to Dani Arthur, who writes for www.bankrate.com, “Unpaid collections are worse than paid collections.” It’s important to address all outstanding balances, whether they are paid in full or settled with a negotiated pay-off.
When closing out unneeded accounts, a small business owner should be careful that doing so doesn’t adversely affect his or her credit score, which is based on the ratio of total debts to total available credit. “You don’t want to have used most of your total available credit on any individual card or, if you have multiple cards, collectively among them,” says Thompson.
5. Add new, positive history.
“It’s important to start adding positive information to your credit report,” says Thompson, “and the sooner you can do that, the better.” Small business owners can access their credit lines and pay promptly to build or re-build history. “Don’t access too many new credit offers,” he advises, “as it may signal a red flag for money problems that you may not have.”
Information is power: “No matter how uncomfortable it is at first, immerse yourself in the topic of credit, do extensive reading and talk about options with trusted sources,” says Thompson. “Once you do, you have taken more control of your situation and that can be very empowering.”
In these times of perpetual white water, attention to credit may help a business find stability in the new year.
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