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building your first business credit
Building business credit is not an easy task especially when you are still new and unknown in the circle of business. A lot of factors both financial and non-financial need to be taken care of before a good and lasting business and personal credit will be built. You maybe wondering, why stress my self over building a business credit, what benefit will it bring to me.
Well, if you are among those that ask this question, this article is specifically written for you. I will give you reasons why you should always have an eye on your credit score both as an individual and as a business and also give you tips on how to improve your credit score, both as a business and as an individual. Enjoy!
IMPORTANCE OF GOOD CREDIT SCORE
The importance of credit score in business cannot be overstressed, I can say it from now till tomorrow without being at risk of been scolded by anyone. But I won’t do that. You need to build your business credit for a good number of reasons which include:
Getting a loan; you will be required to provide a credit score when you want to get a car loan or mortgage loan. Some credit card companies even have this as one of their requirements. This is a good practice and should be encouraged.
Business dealings; some business people may want to see your credit report before agreeing to do business with you.
Establishing credibility; this is similar to the above point. The only difference is that credibility is not only needed by business associates but, the general public at large. You need to be perceived as a business or an individual with a sound credit standing in the eyes of all. The psychological effects may go a long way in boosting the chance of business success- this may come in the form of increased sales.
Bidding for and getting a contract; this point is obvious and needs no clarification. You simply cannot get contracts if your credit score is not in the acceptable range.
Meeting up with government requirements and regulations; in the bid to put an end to the menace that frequently rock the business world, government of some countries have made it a compulsory requirement to have an acceptable business or personal credit score before you can be allowed to register a business.
For peace of mind; you can’t simply take this away. The kind of peace of mind that comes with knowing that your credit status is in good shape is what no amount of money can buy.
HOW TO IMPROVE YOUR CREDIT SCORE
Before you learn how to do some thing, you need to first of all learn what the stuff is and how it works. To this end, a brief description of what a credit score is will be given here.
What is a credit score?
Credit score is a phrase used to describe the creditworthiness of an entity. This entity can either be a human person or a legal person. There are many companies that offer credit scoring services but, only the popular three will be mentioned in this article. They are: Equifax (FICO), TransUnion and Experian. I will pick Equifax for the purpose of illustrating what a credit score is.
Equifax calls its scoring system a beacon, the beacon score is based on a number of factors which include; your job, your level of income, your outstanding debts and loans, your location (your address), how often you have changed your address, your past payment history, your credit/debt ratio (what I call survival ratio), credit/loan mix (i.e. the components of the credit, what proportion is short and long term in nature). Beacon score can be in the range of 300 – 850. With 850 representing an excellent scores which is what we all want.
Now that we are a bit comfortable with what credit score is, we can now go ahead and explore some areas that need to be manipulated within the ambit of the law to improve our credit score. All you need to do is work on those factors that are used to calculate your credit score so, let’s take of them and see how we can manipulate it. But before then, you may need to get your credit score as this is the first step that needs to be taken.
Your outstanding debt and loan; There is no rocket science knowledge involved here. Is as simple as ABC, pay your outstanding debt on time and don’t over extend it. You need to have knowledge of debt management (a component of working capital management) for you to achieve this. And I don’t expect you to have it so; you may consider engaging the service of an Accountant or any qualified finance professional.
Note that every other aspect of the factors used to calculate your credit score will be improved while trying to meet with the requirement of reducing your outstanding loan and debt. That is why you need a qualified finance professional to do this for you.
In this article, you learnt the importance of good credit score and how to improve them but, I must tell you that credit score and its importance is not something that you can learn in one article of this nature. It is something you learn on a continuous basis through reading and learning. So, keep learning.