5 Tips to Boost Your Credit

By: Michael Vodicka

“Higher total credit available sends a message to potential lenders that other financial institutions have modeled you as a good credit risk and boosted your borrowing capacities.”

Last week we went over some tips small-business owners can use to increase their chance of getting a loan. Here is a link to the original story for anyone who wants a quick refresher; Increase Your Chances of Getting a Loan.  One of the first items discussed in the article was the importance of a strong credit score in securing a loan.

But because this is such a universally important issue, for both small-business and personal borrowing, I thought it made sense to circle back around and take a closer look at some steps you can take to boost your credit profile.

So on that note, let’s go ahead and take a look at our Top 5 Tips to boost your credit score, probably the single most important factor affecting a person’s ability to secure either a personal or business loan.

5 Tips to Boost Your Credit

Close Unused Accounts

With credit card offers being thrown in our faces from every direction, it’s actually pretty easy to accumulate a totally unnecessary number of accounts. On any given day, it’s not uncommon to receive multiple credit offers through the mail. It also happens when we shop, where the retailers are quick to extend lines of credit to their customers in order to get them spending. Between Best Buy, Target, Macy’s and a few others, it’s not uncommon for people to have in excess of 10 credit cards.

But the reality is that this is doing more harm than good, not only tempting you to spend but also flagging you as a credit risk. The bottom line here is that reducing the number of credit cards you have open will increase your credit. So figure out which ones you simply can’t live without and just go ahead and close the rest.

Increase Credit Limit

This might seem to fly in the face of our first point, but limiting your credit to a few accounts and then having those limits boosted is a great way to increase your credit score. That’s because the higher total credit available sends a message to potential lenders that other financial institutions have modeled you as a good credit risk and boosted your borrowing capacities. Having 70K in totally borrowing capacity is better than having 50K.

Decrease Utilization

But just because you have your credit limit jacked up doesn’t mean you should go on a spending bender, it’s actually quite the opposite. Once the credit spigots are opened, you want to exercise restraint and keep those balances as low as possible. That is referred to as utilization rate on the Street and it is an important factor when banks are deciding how much more debt your financial profile can handle.

Dispute Discrepancies

It is not uncommon for people to get access to a credit report and see some long-forgotten liability from many years ago still hanging around. That could be an old utility bill from college or even an unpaid parking ticket. And a lot of times, the debt has been settled and the collection company has simple forgotten to report it as such. So get a hold of your credit report and look for any suspicious items that have either been settled or can be done so easily.

Pay on Time

This one might seem a little more obvious but it is none the less quite important, and that is paying your bills on time. This basically boils down to your record, demonstrating to potential lenders that you can effectively manage various financial liabilities regardless of how busy life gets. And that is frequently. But don’t let that stop you from sending out your monthly payments on time, which has never been easier with electronic bill pay and financial transactions.

The Big Picture

A credit score is probably the single most important factor affecting your ability to secure a loan or line of credit. And by taking just a quick look at your profile and identifying key areas or weaknesses, you can do a lot to boost your score and increase your chances of getting that extra line of credit to help keep you and your small business growing.

MONEY MATTERS is a weekly column on the Retail Minded Blog that is contributed by Michael Vodicka, founder of boutique financial consulting firm the Vodicka Group. MONEY MATTERS is Retail Minded’s way of supporting independent store owners with all their financial concerns, real life needs and everyday issues both in and out of their  stores. You can find MONEY MATTERS every Wednesday on RetailMinded.com as well as in each issue of Retail Minded Magazine. 

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