Good credit score – how to calculate, advantages, how to maintain.
Most professionals are aware only of the key benefit of a high credit score. They realise that it is essential to maintain a decent credit score to be eligible to apply for newer loans whenever necessary. But business professionals need to understand the numerous other ways in which a healthy credit score impacts their financial life.
Apart from ensuring cash flow into his business, a healthy credit score also eases a great deal of the financial burden he incurs when his professional life is in its incubation stage.
How is a Credit Score calculated?
The credit score of an individual is calculated based on numerous factors. A few of the significant contributors are his payment history, credit utilisation ratio, credit period and credit enquiry history.
Every business professional should know how to check credit score and regularly monitor their credit score before making any major financial decisions. To aid professionals to gain cognition of credit scores, here are a few crucial benefits of maintaining a healthy credit score.
Advantages of a Good Credit Score:
Reduction in interest rates on Loans and Credit Cards:
The interest rate of your credit card and loans is inversely proportional to your credit score. Higher credit scores translate to greater cuts in your interest rate. This results in lower monthly repayments, which means more cash flow into your business and better debt management.
This, in turn, leads to faster clearing of debts. Hence, to avoid unnecessary interest payments, a professional should find means to improve his credit score to the maximum extent possible.
Better chances to qualify for Loan Approval:
Whenever a professional applies for a credit card loan or any personal loan, numerous factors are assessed as part of the loan approval formalities. But, if you have a high credit score, you are considered a low-risk borrower, and this factor plays a major role in your loan processing.
As you have already exhibited your ability to repay the previous loans on time, lenders will be able to confide in you when compared to others with lower credit scores.
Offers negotiating powers for Better Loan Terms:
With a good credit score, you have established your creditworthiness to the lender. This provides you with the power to negotiate better loan terms with the lender or the bank.
As you are deemed as a low-risk borrower, you can compare the offers from various lenders and negotiate for better interest rates and repayment terms without any hesitation. A high credit score builds trust on the lenders’ end, which makes them take loans decisions mostly in your favour.
Get approved for higher Credit Limits:
A good credit score means better chances of increasing your credit limit. This is because you have demonstrated your ability to repay the previous loan, and banks do not hesitate to offer higher loans when they see the potential in repayment.
Higher credit infuses more cash flow into your business when there is an emergency or even when you are preparing for an expansion of your business venture. When you are entitled to higher borrowing limits, the bank benefits from the interest you repay in the short span.
You can draw maximum gains also through the other perks offered by the banks like cashback offers, reward points and gift coupons. Hence, increased credit proves to be mutually beneficial for you and the lender.
Get favourable Supplier Terms:
Another resourceful benefit of a healthy credit score is that you gain the trust of your supplier. When you need to purchase raw materials, procure machinery or prepare for logistics, you can offer to make the transactions on credit.
It depends on the supplier to take or reject the offer, but a highly rewarding credit score is a mark of strong financial stability. It offers ample chances for the supplier to grab your deal and make transactions based on your preferences.
How to maintain a Good Credit Score:
Regularise Small Loans:
As a guaranteed high credit scorer, you have the chance to regularise small loans like payday loans. A payday loan, if repayed within the terms of the agreement, would positively impact your credit score.
This also gives you an opportunity to drastically increase your credit score by choosing a small payday loan and repaying it on time. You can also make a payday loan comparison offered by various lenders and choose the one that suits you the best.
Pay bills on time:
This seems to be a very usual strategy to maintain a good score, but it is one of the most efficient ones’ too. By following a systematic process of paying bills on time, credit bureaus are pushed to leverage your credit score considering the trust factor you have established.
Allow only the Essential Debt:
Another common factor that reduces your credit score is the practice of taking too many loans on credit cards just because you are deemed eligible for it. This leads to a lot of monthly expenditure and additional interest payments.
Pay your suppliers whenever possible and clear off debts very frequently. After all, always keep in mind, debt is only borrowed cash which should be returned at some point in time. Do not go for it unless extremely necessary.
Plan for your Cash Flow:
If you are contemplating a business expansion, plan it well in advance. Prepare your finances in such a way that you clear all possible debts before taking a new loan.
Clearly tabulate the amount that will be required to invest in machinery or infrastructure, track your savings and chart the loan figure that will be required. This helps in entering the expansion phase without much financial trouble.
Conclusion:
It is an ardent journey to maintain a healthy credit score. You need to set realistic financial goals, strictly adhere to the budget, follow a periodical bill payment cycle and keep track of all loan-related special offers and interest rates.
But all the hard work pays in due course. You save highly on lower interest rates, rentals, exclusive deals and supplier credits. The creditworthiness you build through your high credit score enables your business to flourish for a very long tenure.