Small businesses can save money with good credit score

Right now — when holiday bills start arriving — might not be the best time to mention this, but have you thought about your credit rating? Your personal credit rating has an important impact on your business, so you'll want to know about a new federal law that entitles you to one free credit report from the three nationwide credit-reporting agencies each year.

For those living in the Western states, this law went into effect on Dec. 1. If you live in the Midwest, you can get your free credit reports beginning March 1; in the South on June 1; and in the East on Sept. 1.

Regardless of when you become eligible to get your free credit reports, you might want to take steps now to make sure your credit reports are accurate, because your credit score is based on those reports.

Credit report or credit file. Lenders who give you credit (such as banks, department stores, credit card companies) report your history to one or more credit-reporting agencies. The three major national agencies are Experian, Equifax and TransUnion. They maintain files, detailing your credit history — what accounts you have, how much you owe, whether you pay on time.

Credit score, credit rating or "FICO score." Each credit reporting agency gives you a number, based on a mathematical formula — devised by the Fair Isaac Corporation or FICO — weighing the data in your report.

Your credit history is crucial. Most small businesses — and all new businesses — get credit based on the owner's creditworthiness. Lenders check credit scores whether you're applying for a line-of-credit, loan, credit card, mortgage, equipment loan, even a lease. They'll also set interest rates based on your credit; a higher (better) credit score may save you hundreds — even thousands — of dollars in interest. Before you can become a credit card merchant, companies check your personal credit. Some investors check credit reports on entrepreneurs before deciding whether to invest in their companies.

To request your free credit report and learn more about this program, check the Web site, www.annualcreditreport.com, or phone 877-322-8228. In addition to this national law, seven states (Colorado, Georgia, Maine, Maryland, Massachusetts, New Jersey and Vermont) also have laws enabling you to get a free credit report. And you can request a free copy of your credit report whenever you are turned down for credit.

1. AnnualCreditReport.com is the only authorized Web site where you can get the free credit reports. You are likely to get spam directing you to other Web sites; don't be ensnared.

However, you can purchase a copy of your credit score at the same time for $5.95.

3. You can buy a copy of all three of your FICO credit reports and scores at Fair Isaac's Web site, www.myfico.com.

You can request all three free files at one time or spread your free reports out throughout the year. If you're just starting your business or if you're seeking a major loan soon, it's probably a good idea to get all three to check for inaccuracies.

Getting your free report on the AnnualCreditReport.com Web site can be a bit tricky. I tried it, choosing to get my TransUnion report. To confirm your identity, you'll be asked some security questions, but you may not get the answer right even if you're really you.

For instance, I chose what I thought would be the most straightforward question — my past addresses. Turns out that TransUnion had my current business address listed as a former residence, and I couldn't get the answer right. I then called the phone number to get access.

Just have some of your account numbers (such as a mortgage number) handy. I also chose to purchase my credit score at the same time, so have a credit card handy, too.

After that, I got my free credit report and now can go about cleaning up any inaccuracies. I know, from experience, just how hard that can be. But at least I have my (free) report and can get started.