Let’s face it, tackling finances is always a difficult job, whether it’s personal or business finance. Any business growth plans need funding, and for that, we require loans from financial institutions. Now, to be eligible for borrowing such business loans, you need to understand where you stand as a borrower.
One of the easiest ways to know your creditworthiness is by looking at your credit score. A credit score gives banks and other lenders a general insight into the reliability of you as a borrower. If your credit score is good, then you are more likely to get your loan approved as compared to someone who has a bad credit score.
What is a Credit Score?
Your credit report’s information decides your credit score. This report consists of a detailed record of all the financial transactions made by you as a borrower. It consists of your entire financial history and includes your past history of borrowing and whether you paid them back on time or not. Also, it contains details of your credit card and any ongoing loan application. From a personal loan to an auto loan and even a loan that you may have taken in your personal capacity for your business will get reflected here. A typical credit score ranges from zero to 850. An individual having a higher credit score will be considered first for loan approval as compared to someone having a bad credit score.
What is a Good Credit Score?
As discussed above, a good credit score helps you to secure lenders’ trust and they are more likely to approve your application for a loan. A good credit score is a plus point when you are filing for your business’s tax return. For such calculations, you can hire the services of an accountant for your business.
Furthermore, a good credit score allows you to apply for a higher loan amount as compared to someone having an average or bad credit score. Generally, any credit score in the range of 670 to 739 is considered good, anything between 740 to 799 is very good and 800 and up are considered excellent.
What is a Bad Credit Score?
One of the most important drawbacks of having a bad credit score is that you’ll be unable to get a loan or other credit for your business. And even if you can secure one, you will charge with a hefty interest rate as compared to someone with a good credit score. Your credit profile will be categorisedunder a higher risk group who are less likely to repay the credit.Generally, any credit score in the range of 500 to 600 is considered poor or bad.And any credit score below 500 is considered very poor.
How To Improve Your Credit Score?
The following are some of the ways by which you can improve your credit score and also maintain it:
Pay Existing Loans and Debts on Time
Different factors affect the credit score. The best way to improve your credit score is by paying off all your debts and loans on time. A record of consistent and punctual payments can contribute to a stronger credit score.On the other hand, if you miss your repayments dates, it gets recorded and impacts your credit report negatively which decreases your score.
Pay Bills on Time
This one is a no-brainer. By paying your utility and telecommunication bills on time, you can positively improve your credit score. Also, any loan instalment or credit card bills paid on time with their full amount can improve your score. Any bill that you miss paying can impact your credit score. Also, don’t go over 60 days of the overdue period as it can put your profile into the defaulters’ list, and those defaulter marks stay for five years on your credit reports.
Be Rational About New Credit
Just because you are getting loan offers from banks doesn’t mean you should apply for the same. Any new credit or loan on the product will show up on your credit report. And if you’ve any ongoing loans, this new credit or loan doesn’t highlight your financial stability and can impact your credit score. Also, if you go overboard with multiple loan applications within a short span of time, then it can negatively impact your creditworthiness and can affect your score as well.
Hold Onto Credit Cards You Can Manage
If you’ve many credit cards that you are comfortably managing, think twice before closing any credit card. A credit card directly impacts your credit score and paying all the credit card bills on time can actually benefit you in the long run. It shows your repayment ability, and when you apply for any loan, it’s reflected and gives you a better chance of getting the loan at lower interest rates. Last but not the least, if you don’t have a credit card, then remember the fact that you don’t need one to establish a credit history.
Don’t Exercise Debt Settlement Option
When you have an ongoing debt and you approach the respective lender to cut down the debt amount, then you are indirectly affecting your credit score. Although lenders will agree to reduce the loan amount after a certain of missed dues, this will come with the cost, which is your credit score. In short term, it can give you a breather as you are free from such debt burden, but it signals your incapability of repaying the debt in full.
Don’t Utilize Too Much Credit
Whether it’s your credit card limit or the loan limit that your getting, don’t fall for the purchasing power the entire credit limit can bring. At the end of the day,it’s borrowed money, and you shouldn’t go overboard with it. When you utilise too much credit, you make yourself susceptible to possible default due to increased debt amount. And this can affect your credit score in the future.
By following the above-mentioned steps, you can improve your credit score. Although, your credit score won’t improve overnight. But these steps help to develop a sound financial habit and also benefit you in the long run. It is just like filing for a tax return on time as it can help you with a sound financial report. If you have a small business, then you can lookout for small business tax return tips. Also, you should be aware of the different business structure and how it affects you during taxation. All this information will save you money and headache down the line.
Hello everyone, I am Ariana Mortenson, a professional writer and blogger. I write on various niches in a way that it’s understandable and appealing to the people. I aim to achieve a difference through my writing which allows you to make informed and valuable choices. Follow me back on Twitter, LinkedIn and Pinterest.
Interesting Related Article: “How Can I Protect My Credit Score?“