5 Ways to Fix Your Credit Score and Save on Business Card Interest Rates

Busted, bad or below-average are all accurate ways to describe a credit score below 650. And while a good portion of us don't pay much attention to our credit scores, they usually come up at precisely the worst time, as any small business owner who's been denied a loan or a credit card application can attest to.

Sometimes it's easy to pinpoint why your credit score is low. Maybe you missed one or a handful of payments on an old card, or stopped paying altogether. But other times it's not so easy to determine what's up with your credit score, since credit scores are negatively affected by everything from an overdue library book to going credit-free for an extended period of time.

The good news is that a bad credit score does not have to be permanent, and there are a variety of ways in which you can improve your score so long as you're proactive about the situation. Better credit means better loan approval and better interest rates, both of which can go a long way towards getting your small business the cash it needs to stay afloat. Below are five tips for fixing your credit score, beginning with the very first thing you should do when taking on the process...

1.) Comb through your credit report

The average consumer or business owner may not know that they're entitled to one free copy of their credit report by law each year. Your credit score may be the number that counts, but it's your credit report that details exactly what is making up that score and provides the necessary insight needed when identifying what actions need to be taken to improve your score.

Getting your report free annual report is easy. Go to AnnualCreditReport.com to request your copy and, once you've received yours in the mail, comb through your report to gain a better understanding of how your score is made up while keeping an eye out for inaccuracies.

If you happen to find any false information, then it's time for step 2.

2.) Request debt validation on negative tradelines and debts you deem inaccurate

If something doesn't look correct on your credit report – maybe there's a debt you don't recognize, or an old debt or hard inquiry into your profile that by law should have fallen off – then the next step is to write a letter to the creditor or collection agency reporting the discrepancy advising them to validate the debt.

Debt validation letters don't have to be word-y, but they do have to be in writing since it's always best to keep matters pertaining to your credit report on paper. It's difficult to sort out credit report matters over the phone since the person on the other line is rarely of the authority to remove any issues you've identified, and documenting the process is helpful for your own records and creates a necessary paper trail that could be used to your benefit later on. That said, don't sign the validation letter since you never know who will be on the receiving end of the letter.

If you receive no response within 30 days of your letter, than the next step in the process is to send a dispute letter to the credit reporting agencies reporting the invalidated debt, highlighting the bad debts and describing what needs to be done in regards to them. It's also worthwhile to make a second dispute online as well. If the debt cannot be validated than a successful dispute will remove the negative tradelines and bed debts from your reports for good.

Removing old debts and negative tradelines can be time-consuming and at times frustrating, but in the long-run it can be a necessary step for improving your credit score.

3.) Open up a secured credit card

Secured credit cards are proven credit-building tools when used responsibly over time. They're also perfect for bad or fair credit consumers since their approval rates are usually determined by whether or not a consumer is willing to front the security deposit required for approval of such a card. The minimum deposit generally required to open a secured card account is between $200 and $300 and is fully refundable.

Secured cards are the preferred category of credit cards for bad credit since their interest rates and annual fees are much lower than unsecured bad credit cards, plus a handful of them provide monthly credit monitoring tools at no additional charge. They're not as sexy as the best business rewards cards available, but they'll help to get the ball rolling on improving your credit history and score.

That said, merely opening an account is only half the battle...

4.) Use your new card and make payments on it monthly

That's right – you have to use it, too!

Making monthly on-time payments is the easiest thing you can do as a consumer to boost your score over time. In fact, the inventors of FICO have said outright that a full 35 percent of your score is made up of your payments history. The better your payment history, presumably the better your score.

Take the opportunity to start fresh with your new secured card by making at least one (and ideally multiple) payments each month to boost your payments history.

Last but certainly not least:

5.) Prioritize paying down your debt

While determining how to improve your credit score can be challenging, here's one rule of thumb that's easy to remember: you'll never improve your credit score if you carry a huge balance each month.

Those same guys and gals at FICO have said that the amounts you owe make up another third of your score, and that carrying a balance that's equal to 30 percent or more of your total available credit is a pretty bad idea.

Ideally, you'll want to carry just 10 percent or less of your total available credit, which means that if you're deep in the credit card hole it would be wise to organize your own personal spending freeze and prioritize paying down your debt.

It's true that some of the above tips are easier to manage than others, but each is important if you're truly serious about fixing your credit score. In the long run, an improved credit score can save you tons on interest rates while making your dreams of owning a home or riding off the lot in a sweet new ride a reality.

Essentially, time spent improving your credit score is worth every penny for you and your business.