Give Yourself Some Credit

Credit history is important for all companies, no matter the size.

Small businesses have many huge advantages over big companies. A small business can move quickly to enter into a new market, to change prices, or begin working with new suppliers. Small businesses can redefine who they are overnight.

But there is something that a small business cannot change quickly no matter how hard it might try: its credit history.

How important is your credit history? It is critical to your company’s ability to buy goods and services at a lower cost, to lease office space, to lease vehicles, to purchase vehicles on credit, to get insurance coverage at decent rates, to get a business line of credit – basically, having a bad or nonexistent credit history is going to cost your business money.

A small business’s credit history largely depends on the credit history of the business owner. The owner and the company are tied together, especially in the first few years of the business’s life.

As the company grows and matures, it develops its own credit history, but often vendors, suppliers, and banks still ask for the personal guarantee of the business owner. If a vendor asks for a personal guarantee, however, you might be able to get them to waive that requirement, but you must ask them to do so.

The good news is that your and your business’s credit history is something that you can control. A good place to start is to get a current personal credit report. You can get this free at www.annualcreditreport.com.

It’s important to know that there are three major credit reporting agencies that track your credit history: Equifax (www.equifax.com), TransUnion (www.transunion.com) and Experian (www.experian.com). Legally, each of them is required to give you a free copy of your credit history every 12 months, if you request it. (For more information on your legal rights regarding credit reporting, visit the Federal Trade Commission’s Web site at www.ftc.gov/bcp/conline/pubs/credit/freereports.htm.)

Your credit report lists information about you that other people see who are evaluating your worthiness. If someone does not know you and all they see is this credit report, that is what they will use to determine whether or not to extend credit to you and to your company.

Get a copy of your credit report from each agency. If there are errors in it, correct those immediately. Know what information is being reported about you, and by whom. I requested a copy of my credit history recently and found information going back more than 20 years. I was surprised that my credit history was being tracked that far back. Your credit history also helps determine what interest rate you will be charged when you borrow money from a bank, or when you lease or buy a new car. Protect it.

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