How to establish good credit

Q:What is the best program to start or obtain business credit? I was leaning toward Dun & Bradstreet. In doing research, sources say that establishing business credit is very important. Also, how does one separate business credit from personal credit history? -- Jacob H., Richmond

Answer: Dun & Bradstreet is a resource that various creditors and others with whom you do business can check with to see if you have blemishes on your record.

Businesses provide D&B with selected data that they do not mind other businesses seeing. D&B also gathers data from many other sources, including creditors, banks, etc. It is wise to secure a copy of your D&B report annually and notify the company of any inaccuracies.

You are correct: A good credit rating is critical to the success of your business. However, given that most lenders, leasing agencies and major creditors require a personal guarantee, it is difficult to segregate your personal credit from the business credit history. As a small-business owner, you are what stands behind the business.

To begin, order a free copy of your credit report from http://www.AnnualCreditReport.com. Contrary to claims from other sources, the only place you can receive a free report is from credit-reporting bureaus TransUnion, Experian and Equifax.

Each bureau is required to provide one free copy each year upon request. It's a good idea to order a report from all three, as they don't always agree. Again, if there are any discrepancies, notify the bureau immediately.

You can also obtain a copy of your Fair Isaac Corporation, or FICO, credit score from the same three providers. It is important to obtain all three, as the scores can vary. The FICO scores range from 350 to 850. With a score of 720 or higher, you have a better chance of securing a loan at a competitive interest rate.

Here are some tips for improving your credit score:

• Compile and prioritize a list of monthly expenses.

• Avoid accumulating too many credit cards; two or three are adequate.

• Consolidate credit-card and other debts when possible.

• Never charge up to the maximum limit of your credit line; stay below 50 percent of it.

• Contact your creditors to try to negotiate more favorable interest rates and payment terms.

• Pay down debts with the highest interest rates first, and make at least the minimum monthly payment on all others.

• Always pay your bill before the due date. Nothing does more damage to your credit score than a late payment.

Remember, every time you open an account, the creditor pulls a copy of your credit report. Resist the impulse to sign up for a store credit card in order to get a discount on your purchase. Even if you close the account soon after, it can affect your credit score.

Debt management is not as difficult as it may seem, but it does require discipline. When possible, we should do as our grandparents did: Pay as we go, as opposed to repay as we grow, with interest!

Volunteers with the Richmond Chapter of SCORE, Counselors to America's Small Business, will answer questions from small-business owners and managers. Go to http://www.richmondscore.org and click on the link to "Ask SCORE." A counselor will respond within 48 hours. Select questions and answers will be featured in Metro Business on the second and fourth Mondays. To learn more about management issues facing small businesses and SCORE's workshops, go to http://www.richmondscore.org or call (804) 771-2400, ext. 131.