How your credit score affects your business
A credit score is a numerical expression based on a level of analysis of an individuals and company’s credit history which is used by lenders to determine creditworthiness and serviceability of a loan. The higher the credit score, the better chance a lender would be willing to provide you with credit. The credit score is determined by the stability of your business in terms of servicing debt repayments. This means that the financial position and operating cash flow of your business is very important whether you’re a small or large business.
Most people do not understand the value of building up their credit scores until they need a financial aid for expanding or for keeping their businesses buoyant. The truth is that your credit score is the picture that the lender looks at to decide whether you are worth the risk. The following are the important features that appear on your credit score and how each one of them affects your loan application.
This feature outlines how you pay back debts. In other words, it tracks your ability to pay loans and if it is on time. It entails your payments on credit cards, retail accounts, installments loans, finance company accounts and mortgages. It also includes public reports and records such as foreclosures, wage attachments, judgments, bankruptcies among others. If this component shows that you attempt to pay the due amount, then it is good for your credit score. However, if it shows delay and or failed payment, then this is not good for your credit score.
This shows how capable and committed you are to paying debt. It shows whether you honor an installment and whether it was on time. This means that if your paying pattern is good even if you have not completed the previous debt, then this will favors your credit score. The vice versa of the latter is also true.
The length of credit history
Creditors will trust a credit card that has a longer period in the business. This is because they can assess a longer time of a responsible debt management. The older the credit card the higher credit score.
Type of credit
This concerns the various types of credit you own and if you use them the right way. It doesn’t matter how many credit cards you have but how you use them. Using the credit card appropriately increases the credit score.
This suggests that you are applying for a new loan. It is not advisable to open many credit accounts within a short time as that will count as a multiple inquiries and will definitely lower your credit scores.
A good credit score enables you to have the loan whenever you want it. In addition, it ensures that you do not pay more interest on the amount you have borrowed. Therefore any business owner, both small and large businesses should keep their credit score high for future referencing when it comes to lenders.
A credit score is a numerical expression based on a level analysis of a person’s credit files, to represent the creditworthiness of an individual. A credit score is primarily based on a credit report information typically sourced from credit bureaus
About the Author
Timothy Dowling is one of Australia’s leading debt collection specialists. With over 25 years experience working as a thought leader across a number of industries like accounting, management consultancy, operations and debt management , he has gained a reputation as a leader in providing financial information, practical knowledge and education for both small and medium sized enterprises across the globe. Whilst he has a vast experience across many business sectors, he spends a large majority of his time guest speaking at various conferences to nurture future specialised debt collectors and educating businesses on how to improve debt management processes.