Having a solid credit score is often overlooked. No matter your situation, having a great score is an asset to your business and personal finances. Financiers use credit scores to assess your ability to repay your debts based on your history. Therefore, you’ll need to have taken out a form of credit at some point or another to have an accurate score on file. Most contracts that involve repayments over time will contribute to your scores, such as a credit card, mobile phone contract or even your utility bills.
Your personal and business credit scores are different, but both play a role in assessing your creditworthiness. Credit agencies regularly update your score – the two leading players in Australia being Experian and Equifax. You can check yours for free at any time, noting that the higher your score is, the better. Of course, your personal credit scores can impact your business as well, as financiers will often run a credit check on any company directors. Let’s take a look at why a good credit score is so essential and what you can do to improve yours today.
Why Your Credit Scores are So Essential
Not having a credit score at all will heavily impact your ability to be approved for any type of loan, including credit cards, mortgages and business lines of credit. Once you have an established score, increasing it has many benefits, including:
- Obtaining business finance. If you’re an owner or a director of a business, your business credit score, as well as your personal credit score, will impact your chance of obtaining credit. High credit scores will make any business finance application much smoother.
- Quicker and easier approval. A high credit score indicates to lenders that you are at a lower risk of non-payment, increasing your approval chances. It’s also likely to speed up the timeframe. You’ll have more loan offers available and a speedier process to approval.
- Lower interest rates. A top-tier credit score may make you eligible for lower interest rates on any funds you are approved for. Of course, this saves you money over the life of the loan or facility.
- Higher credit limits. If you’re looking to access a significant amount of funding, you’ll need a good credit score to back up your application. Higher credit limits aren’t always a good thing – if you can’t pay back the higher amount as easily, you may end up worse off.
Simple Tips to Improve Your Credit Scores
Fortunately, there are many tried and tested ways to improve your credit scores, both personal and business-wise. Here are our top tips:
Take out business finance
The best way to begin building your credit score is by taking out manageable debts. For example, if you’re looking to purchase some new office equipment, instead of buying it outright, pay it off over time. Depending on your operating history and cash flow, you might be suitable for an unsecured business loan, business overdraft, or line of credit.
Other options, such as invoice finance, are excellent for growing businesses that want to leverage their outstanding invoices as a means of securing cash flow and improving their credit score. Invoice finance providers will pay you up to 90% of your verified outstanding invoice value upfront, often within 24 hours. When your customer pays and the funds are received by your debtor finance provider, they’ll remit the remaining 10%, minus a small fee to compensate for early funding.
An invoice finance facility acts as a revolving credit line backed by the invoices you issue to your customers. You can choose to draw down funds as often or as little as you like, only paying for what you use. Instead of waiting for between 30 and 90 days for a customer to pay, your business can access the cash almost immediately.
Make your repayments on time
Missing a repayment, whether by chance or not, is not suitable for your credit score. Once you miss a refund, it’s often easy to fall into the debt spiral trap. Instead, make a clear plan of your repayments and when they’re due, as well as setting up direct debits to prevent human error. Late fees don’t make financial sense, and a mark on your credit report doesn’t either.
Only use what you need to avoid defaults
It’s also a good idea to limit your exposure to any debts. For example, just because you have a $100,000 credit limit on your business credit card, it does not mean you should use it. Lower usage of your credit limit is often seen as a positive by credit rating agencies. Furthermore, it increases the risk of defaults. If you continually miss your obligations, funders may close your account, loan or facility, damaging your credit score for a long time.
Be careful of fraud and maintain bills in your name
Make it a habit to regularly check transactions on your credit card or loan accounts. The last thing you want is an unauthorised transaction impacting your credit score unfairly. Furthermore, when it comes to your personal credit score, you want to have at least a few of your regular bills under your name. Electricity, phone and internet bills all add up to improve your credit score over time.
TIM Finance helps small and medium businesses sustainably access the working capital they need to support their operations, pay their bills and expand. Boost your credit score and get the cash you need and make TIM Finance your partner for flexible business finance today.