Improving/Maintaining Your Credit Score

March 8, 2009

In addition to navigating one of the worst economic periods of our time, it is of the utmost importance to recognize and maintain your credit score.  With the combination of economic conditions along with bank tightening of credit models, your FICO score will become your lifeline to capital to support and grow your practice.

Although there are additional scoring models other than FICO, this is probably the most widely used and recognized model.  Developed by Fair Isaac Corporation, this score determines what rates may be offered and if an approval will be extended at all.

Here are some helpful ideas to maintain or improve your credit score and increase your ability to acquire capital for equipment you need to properly manage/operate your practice.

1. The obvious is to pay your accounts in a timely fashion.  But, in addition to the obvious, the longer that you are “in file” with a credit reporting agency with good credit payments, the better the score will be in the long run.

2. Watch out for public record activity such as collections.  Pay attention to items like medical bills that might get skipped by an insurance company.  Just because a claim is filed doesn’t mean that they paid it.  You have to follow this through to completion.

3. Watch for additional public records such as suits, judgments, and tax liens.  If involved in a conflict and sued, respond to all legal complaints in a timely fashion as this can end up on your credit bureau as a judgment.  Pay close attention to tax payments such as 941 employee taxes as this will be reported to your report and adversely effect the scoring model.

4. Be cognizant of using personal credit cards to purchase inventory for business use.  Although rewards points are nice to have, if the account is not paid in full, this will be calculated into a percentage of available credit lines.  The lower the percentage available on all credit cards or lines combined, the lower the score at any given time of the inquiry or request.

5. Do not close accounts because you do not use them.  Use these cards “every so often” for small purchases and then pay them off.  This shows the activity with a credit card company and they will be less likely to close an account due to inactivity.  A closed account reduces the percentage of available credit lines.

6. Go sparingly when applying for new credit cards.   Do not apply for several all at once as the inquiries from those firms will lower your credit score.  Be strategic about what accounts you think will be helpful for a specific purchase.  An example might be a promotional no interest card that you could use for a purchase that can be paid off in two or three months.

7. If you know you have a good credit score and you are making a larger purchase for something do not let an equipment provider shot gun your credit to his lenders.  Tell him your credit score and go in prepared so the vendor goes directly to their preferred funding source.

Finally, you should consider monitoring your personal credit with all of your credit reports available for review.  We use Equifax as they are a trusted partner with my firm, Ryan Capital Leasing Corporation.  We have seen a credit report improve dramatically overnight because a consumer was able to monitor his report, call his own local bank on an erroneous late account, and have it removed within a day.

Having the knowledge of how important the scoring models work and how they will be utilized in the future will enhance your business and the prospects of long term growth.  The economy is difficult; however, when the business environment improves, you will be in a better position to take advantage knowing you can obtain the capital to leverage your growth.

Wesley Overstreet

Ryan Capital Leasing Corporation

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