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Your credit – Part 2

April 22, 2014

Question: Steve, I know you used to practice law, so I am hoping you can help me. I went to get a loan for my business, and my personal credit showed a lien against me for $30,000! I know I don’t owe anyone anything like that amount of money. So I didn’t get the loan AND I have bad credit. Do I need to hire a lawyer, or what?

(Part 2 of 2)

Answer: In my column last week, we began looking at how credit affects your business and how to find out what is on your credit reports. This week, I want to discuss how to get the credit and capital you need for your business.

As I mentioned, the first step in increasing your credit-worthiness is to pull and review your credit reports. There are many reasons to do this regularly:

First, it allows you to find and correct mistakes on your credit report. I was recently on a panel with credit expert Jeanne Kelly, and she said that she had never seen a personal credit report that didn’t have at least one mistake on it. That is quite a remarkable statement, but, in actuality, maybe not surprising. Every month, creditors list more than one billion pieces of credit information to Americans’ credit reports, and given that volume, mistake are bound to happen. So you want to look for items on there that are not yours, such as debts that are not yours being reported as yours or omissions of your good payment history.

Also, regularly reviewing your credit history alerts you to potential identity theft problems.

Regular reviews also allow you to discover dated items that should be removed. Other than a past bankruptcy (which legally can be on reported on your credit for 10 years), anything older than seven years should not be on your credit history. That means that if you went through a tough time last decade and maybe have some late payments to your name, legally they cannot be part of your credit report after seven years. The same of course is true for positive listings over seven years old.

Make a list of the old and wrong information, and send the credit-reporting agency at question proof. They have to either confirm the debt (if you dispute its accuracy), or delete it. Old items should be deleted without question.

The point of all of this monitoring is to make sure that your personal and business credit reports accurately reflect that you and your business pay bills on time, because once you show that, that also shows potential lenders and investors that your business is a good risk. The likelihood that you will get the credit you want grows with each positive entry on your credit report.

Next step: Create even more good business credit. Too many small businesses make the mistake of co-mingling their personal and business credit and debt. While understandable at the beginning of an enterprise, it is a mistake that should be corrected pronto.

So, with your separate taxpayer ID number and DUNS number, go get credit in the name of the business. Get some revolving trade credit. Get a business credit card – secured or, better, unsecured. Take out a small loan from your bank.

And then keep paying the debts back in full and on time.

Once you have done all of the above, you will really be in position to get even more credit, and on even better terms.

Finally, get to know your banker and help him or her to understand your business, your dreams and plans, and how getting credit fits in with those goals. Lenders want to lend you money. The easier you make their job, the easier they will make yours.

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