Credit score is the key to a favorable business loan rate.
While many people are under the impression that their credit score is only relevant when they need to apply for business credit cards or get a business loan, the fact is that your credit score follows you everywhere. It will play a massive part in your financial life.
Your credit score holds a lot of power, especially when a bank or business is considering lending capital to finance your business. It’s one of the essential aspects of your financial life. Your credit score is represented by a three digit number and takes into account all of the information on your individual credit report. Using a mathematical formula, that credit report is turned into a recognizable number. What’s more, the higher the number, the better your credit score is.
Why is Your Credit Score Important?
Most people know that a low credit score will affect your ability to sign up for a new credit card or get a business loan. However, a bad credit score can impact much more than that. What else can your credit score make its presence felt in your financial future, however?
- • Insurance Premiums: All varieties of insurance will be affected by a low credit score. From car insurance to property insurance, the premium will ultimately be determined by your credit score. Having a low credit score will commonly result in much higher premiums, which can cost you hundreds of dollars every year. In contrast, having a high credit score can actually result in discount packages, with the added bonus of much-reduced premiums as well. It can have a very positive effect on your approval rates if you are looking for options to get a business loan.
- Employment prospects: It has been the cause of much controversy, but employers are now looking at the credit score of prospective employees. They do so as it is often a good indication of the candidates level of responsibility. However, this practice has suffered much criticism. It’s certainly worth bearing in mind if you are under the impression that your credit score is only relevant if you are looking for a new credit card.
- Housing issues: It can be challenging to find a landlord that will accept a new rental agreement if you have bad credit. The more expensive the property you want, the more likely that the landlord or realtor will run a credit check. If your score is low, then you may lose out.
- Phone contracts: Having a phone these days is a necessity, but if your credit score is low, then you may not be allowed to sign a long-term phone contract. Keeping aware of your credit score will make it less likely that you will be refused such a fundamental element of the modern age.
What Makes a Bad Credit Score?
There are numerous ways to get a bad credit score, and it’s worth doing a credit score check on a regular basis. Whether they are for reasons that are beyond your control or mismanagement of your finances, being aware of these reasons for a lower credit score can help reduce your exposure to them:
- Late Payments: If you are consistently late making repayments on loans or credit cards, then your credit score will reflect that. As much as 35% of your credit score is based on your credit history. Having a turbulent history is very damaging.
- Defaulting on credit card payments: Failure to pay your credit card bills is one of the most common ways to damage your credit score. It can spiral out of control if not attended to, and the next step will be a Charge-Off.
- Charge-Off: If you owe money to a creditor and they see that you have made no steps to repay what you owe, then your account will be charged off. Having a charged-off debt is hugely damaging to your credit score.
- Loan defaulting: If you default on a loan of any kind, your credit score will be affected in the same way as when you are charged off. Any funding company will see your loan default as confirmation that you are a credit risk. Your chances of being approved to get business loans in the future will be severely reduced.
- Bankruptcy: This should always be a last resort option. Filing for bankruptcy is the most drastic way of negatively affecting your score. Foreclosure on your home is treated in much the same way, and like loan defaulting, will show that you are going to be a high credit risk.
How to Boost Your Credit Score
There are no quick methods for improving your credit score. It takes time to repair bad credit. There are a wide variety of companies that offer to fix your credit score quickly, but these are more likely to cause further damage. Managing your finances over time is the only proven way to ensure that your credit score remains stable and beneficial. You can do this by:
- Setting up payment notifications: Making your financial payments on time is one of the more critical elements of a good credit score. Set up your bank account so that you receive alerts when a payment is due and ensure that there are sufficient funds in your account to meet those payments.
- Reduce your debt: This can be quite difficult to achieve, but it is achievable. Your first step should be to change your spending patterns so that you stop relying on credit cards. Make a list of all of your debts and check which ones are charging the most interest. Tackle those first, and set up a repayment scheme that will see your debt reduced over time.
- Business debts: While there is a difference between a business loan and a personal loan, many entrepreneurs opt for a personal loan for a variety of reasons. If your credit score is due to business debt, there are a number of specialized options to take note of.
― Sophia Amoruso, #GIRLBOSS
Is It Impossible to Get Investment with Bad Credit?
Although having a bad credit score will severely reduce your options for investment, there are solutions. There are credit cards and loan programs available that have been specifically designed for those with bad credit history. Look beyond your bank, and you may find alternative options. You might also consider microlenders and web-based lenders. Not only can these approve loans from $5,000 to $25k, making repayments on them will improve your credit score.