In market with rising interest rates, it’s important for business owners to recognize they can actually lower their cost of funds by improving their credit. At American Capital Group, one of our core values is to support our customers however we can, which includes educating them on best business practices.

We have consulted with many of our higher risk clients and by taking these steps to improve their credit risk profile, they have secured significantly better options.

1. Always pay on time.

Late payments appear on your credit report and often are the first thing lenders review. More credit card companies and banks offer payment reminders, so you can receive an email or text message when your payment is due, or have the minimum payment automatically withdrawn from your checking account. If you share a joint account with your spouse, be sure they pay on time. Even if you don’t receive the bill, you can still be penalized for late payments.

2. Keep credit utilization low. 

In order to build your credit, use only a portion of your total credit allowance. Many experts suggest to keep charges below 30% normally, and below 20% to raise your credit score. That means if your overall limit is $1,000, only charging $200 in a given billing period. Closing out credit cares can hurt this ratio as it reduces your available revolving credit.

3. Be aware of inquiries. 

Hard inquiries are generated when lenders check your credit information. These can remain on your credit for 2 years, and having several inquiries will lower your credit score. What most owners don’t realize when utilizing dealer financing on vehicles or equipment is that many dealers will submit an application to 5-10 different banks, each with their own credit inquiry. If you’re applying for financing, make sure the lender is either doing a “soft pull” meaning it won’t appear on your credit, or isn’t submitting your request to multiple financial institutions. In fact, it is better to secure an approval through your own source than relying on dealer financing for terms.

4. Separate business and personal transactions. 

When financing business equipment, choose a lender, like American Capital Group, that will report only on your business credit. Not only does this help build your business credit, but it will also help you in securing better terms on personal mortgages, educational loans, and personal vehicles.

By practicing these four principles, you can build or maintain your credit and ensure the best possible financing terms.