CHICAGO — Recent developments in our troubled economy have served to dramatize how credit can be a valuable friend or a dreadful foe. Used sensibly, credit can be a powerful asset in your business life. Use it carelessly and it can become your worst enemy.
You may not need to use credit every day, but when you need it, you can’t afford to have the door closed in your face. Here are nine ways to put credit to work for you and your laundry and not against you:
Be Aware of Your Credit Report
If your credit score is “good,” it will be easy for you to get credit when you need it. If your score is “bad,” you may find it impossible to get credit from anyone.
If you are operating your store as a sole proprietor or partnership, it isn’t possible to separate your personal credit from your business credit; your score for both will be the same. To learn more about how your credit score is calculated, visit www.ftc.gov.
The three credit reporting agencies (CRAs), Equifax, Experian and TransUnion, are required by law to provide you with a free copy of your credit report once every 12 months at your request. You can order your free report online at www.annualcreditreport.com, or by calling 877-322-8228.
If your business is incorporated, you may want to register with Dun & Bradstreet using your legal business name. Registration will provide you with a DUNS number, a unique nine-digit sequence recognized as a universal standard for identifying and keeping track of the more than 120 million businesses in the D&B database. There is a fee for this service, but a DUNS number will help to establish your credibility with suppliers and vendors.
Improve Your Credit Score
You can improve your score by:
- Paying your bills on time. This is the smart way to handle credit. Late or missed payments are a sure way to lower your score and incur hefty late fees and finance charges.
- Avoid large balances. Outstanding balances larger than about 25% of your credit limit are a red flag to financial institutions.
- Avoid closing out an account and transferring the balance to another credit card. This can hurt more than it can help. Each time you close an account, you lower your overall credit limit. Thus, your existing debt becomes a larger percentage of your credit limit.
Avoid the Minimum-Payment Trap
Whenever possible, don’t charge more than you can pay off in full when your monthly credit card bills arrive. When you pay the full balance on your credit card bill each month, you’re taking advantage of an interest-free loan from the card issuer. That’s the smartest way to use a credit card.
If you make only minimum payments on a significant balance, it can take years, and sometimes decades, to pay off the full debt. Once you fall into the “minimum-payment trap,” it can be difficult if not impossible to dig your way out.
Don’t Cancel Unused Credit Cards All At Once
If you have a number of credit card accounts but use only a few of them, it’s best to close out the unused ones. However, be sure to keep the cards that you’ve had the longest and cancel the newest cards. The CRAs like to see a long record of prompt payments. Too many new cards will tend to lower your credit score.
If you have more than one or two unused cards, spread out the cancellations over a period of several months. A rash of card cancellations in quick succession is another red flag for the monitoring agencies.
Think Twice Before Opening New Accounts
If you and your laundry don’t already have a long and favorable credit history, opening a new credit line will tend to lower your score. New accounts lower the average age of your accounts. That, in turn, affects your credit score.
Wednesday: Consolidating card balances is not a cure...
Have a question or comment? E-mail our editor Bruce Beggs at [email protected].