A credit report is a small business owner’s first impression and a foundational document when applying for a small business loan, SBA loan, or even a grant. It has more uses than you may think! With that in mind, it’s important to be proactive and participate in maintaining it. If you work on it, your credit report will work for you.
Lenders and other financial agencies rely on business credit scores and personal credit reports to prequalify small businesses for funding, but that’s not all. Because of the information listed on the report, credit reports are often used to confirm information and prevent fraud when you apply for a small business grant. They are also used when applying for some forms of insurance. Finally, your credit report is also a major deciding factor in loan interest rates and terms.
Read Your Credit Report Every Year
Even though a credit report is such an important public record, most people don’t check their own credit reports. Everyone is able to order one free copy of their credit report per year from the three major reporting bureaus: Experian, TransUnion, and Equifax. AnnualCreditReport.com will pull your credit report from all three of these sources.
Your credit report has five main categories of information in it. Read every section thoroughly so you can see what potential lenders will see during the prequalifying process.
- Personal information
- Employer history
- Credit history – This section determines your credit score.
- Public records – Foreclosures, repossessions, bankruptcy filings, etc.
- Credit inquiries
Because the information in this report is detailed, some people choose to freeze their credit to help avoid identity theft.
Dispute Incorrect Information on Your Credit Report
You can’t control what information is included or excluded in your credit report, but you can make sure it is accurate. More importantly, you can make sure each credit obligation is legitimate and not a result of identity theft. A study by the Federal Trade Commission found that about 26 percent of participants found errors on at least one of their credit reports.
Check every entry in your personal history, employment history, and public records to be sure they are correct. Pay special attention to your credit history, because credit bureaus pull from this section to calculate your credit score. More on that in a moment.
Credit inquiries happen when an organization pulls your credit. For example, when you apply for a credit card, a lease on an apartment, or an application for a loan. Make sure you recognize each inquiry. If you don’t recognize an inquiry, it could be a fraudulent application resulting from identity theft, which may have disastrous effects on your credit.
If you need to make a correction, you can dispute the error with the reporting bureau directly. The credit bureaus are required to respond within 30 days to investigate. Common errors include:
- Unfamiliar accounts and account numbers in credit history
- Incorrect account status in credit history, like accounts reported as late or delinquent when they were not
- Addresses where you’ve never lived in personal history
- Former spouses still listed on bank accounts, loans or credit cards
- Tax liens, which should no longer be listed on credit reports
To dispute an error, you have to reach out to each reporting bureau. Have a copy of the credit report on hand, since they will likely ask for file numbers and other details to file the dispute.
- Call 866-200-6020
- Write a detailed letter to Experian at P.O. Box 4500, Allen, TX 75013.
- Use Experian’s online dispute form
- Call 866-349-5191
- Write a detailed letter to Equifax at P.O. Box 740256, Atlanta, GA 30374-0256.
- Use Equifax’s online dispute form
- Call 800-916-8800
- Write a detailed letter to TransUnion at P.O. Box 2000, Chester, PA 19016.
- Use TransUnion’s online dispute form
Make Informed Credit Choices for a Better Credit Score
Your credit score is calculated based on several parts of your credit history. To keep your credit score on an upward trend, make sure you’re aware of all of these points and make your choices with intention. Most negative items on your credit history and public records stay on your credit report for 7 years. Others, like a bankruptcy, stay for longer.
- 35% – Payment history, how often you paid bills on time
- 30% – Amounts owed
- 15% – Length of credit history
- 10% – New credit
- 10% – Credit mix, how many different types of credit you hold
You are not the only one at your business Your credit report works for you when it is a fair, correct representation of your history. Take control of your credit report to set your small business up for success.