Once you have set up your business, the business starts to build its own credit rating and standing. Both individuals and businesses are very conscientious about their credit scores for the main reason that everything that you would like to acquire in the future depends on it, particularly for personal or business loans and acquisition of any fixed assets such as a house, building, or a vehicle.
Having an excellent credit score enables a business or an individual to apply for personal or business loans at a lower interest rate with more favorable lending conditions approved in almost an instant. With the vast array of loans and mortgages available to those who have good credit scores to begin with, all one needs to do is apply and the approval rate and possibility of a higher amount is achievable.
A good credit score equates to having a high level of trust in the business’s name that it is tantamount to saying that the business will be able to pay any loan it is granted on time and without delays. Every positive transaction under the name of the business is a step closer to achieving a higher credit score which in turn presents much better opportunities and possibilities for the business.
HOW TO BUILD A GOOD CREDIT SCORE
In the course of business operations and individual transactions, it is very important to be able to build your credit score to at least a good standing in order to qualify for better deals and opportunities especially if you are planning for a business expansion or getting a mortgage for a house, land, or building. Timely and consistent repayment of credit cards, recurring monthly bills, not going over your credit limits and using up your allowable overdrafts are some of the best practices that one should have in order to build a good credit score. It is also good practice not to apply for too many credit cards that you will eventually not be able to pay when grossly misused.
Primarily, a low credit score affects your chances of applying for better deals on business loans, especially if the business needs it immediately. One may highly likely have to run to private lending companies who mostly charge higher interest rates for businesses and individuals trying to avail of loans for immediate use. These private lending companies take higher risks due to possible non-repayments or defaults so in order to mitigate those risks, higher interest rates are charged for granting loan amounts to businesses or individuals with questionable credit ratings or scores.
UNDERSTANDING YOUR BORROWING POWER
Your borrowing power is described as the loan size that you would likely be approved of in an event of a need to borrow money for any business or individual purpose. The higher your borrowing power is, the possibility of being granted a much higher loan amount is there because you have the capability of paying the loan amount and will not default at any given time. A credit score that is very good or excellent is one of the best metrics and indicators by these lending companies and banks that you are trustworthy enough to be granted a loan amount that is even higher than what you have intended to take out. When your business operations are stable, you have low or minimal debts, and you have a higher income ratio than your debts, you are likely to be granted loans that would not hurt your budget and cash flow in the long run.
Credit scores are indicative of a business or an individual’s capacity to handle their finances in all aspects. It is essential to keep track of all your financial activities as even the most trivial of all, like paying your monthly bills, is considered in building trust and confidence for a higher credit score in your records.