Do you understand the status of your credit score?

A credit score is used for more than just determining loans and interest rates. Many businesses, landlords, mortgage lenders, utility providers, and even employers use your credit history to predict your ability to manage finances.

As an entrepreneur, a good credit score can be an invaluable tool in deciding the success of your business as suppliers will be more likely to give you favourable payment terms and lenders will give you better access to credit and capital

What is a credit score?

Credit scores are calculated by various bureaus and, generally, a higher score will indicate that you are considered a lower risk to financial institutions.

Your credit profile is a snapshot of your financial history, and your credit score is the rating given to you or your business based on the number of credit accounts you have, your repayment history, and other factors. As a business owner, you may have both a personal credit score and a business credit score.

A personal credit score relates to your personal financial history and shows how consistent you are with your personal finances. This tells lenders whether they can trust you with paying bills on time which will help you qualify for financial products like car loans, credit cards, and bonds.

A business credit score differs in that it is directly linked to your business’s financial history including repayment behaviour to debtors and trade data such as bankruptcy and judgments that are filed in your business's name.

It also looks at the financial health of a business's directors, making personal credit scores an important consideration.

It would be best to review your personal and business credit score on a regular basis. Familiarising yourself with this will help you pick up errors, avoid future slips and put measures in place to get your business in better standing.

How do I improve my credit score?

You may find that your credit score isn’t what you’d hoped it would be. The good news is that there are a few simple steps you can take to improve your score as these factors affect your score.

Pay your creditors on time:

If you contract for a service or supply, it’s important to ensure that you pay on time. Failing to do so could allow that creditor to list you with the bureaus which can hurt your credit score.

Use your credit wisely:

This looks at how much of your available credit you are using at any given time and gives lenders and credit bureaus an idea of how reliant you are on credit. Keeping your credit use low will positively impact your score.

Improve your cash flow management

Missed payments don’t always happen because your company is doing badly. Sometimes a late payment on an invoice can leave you with limited cash flow. Making sure you have access to funds in these situations is important to ensure you don’t miss any crucial payments.

Avoid missed payments and judgments:

Missing too many payments is bad, but when a company gives up on you, they can file a warning with the bureaus that you are not to be trusted.

“Defaults” such as subjective classifications of consumer behaviour (delinquent, default, slow paying, absconded, not contactable and the like) typically remain on a credit record for one year, whilst classifications related to enforcement action (handed over, legal action, debt write-off etc) remain for two years.

If a court judgement is issued, that stays on your credit record for five years and remains collectable for thirty years in total.

Keep your suppliers in the loop:

Sometimes a missed payment is inevitable. To avoid repercussions, make sure to keep suppliers and creditors informed if you miss a payment or expect to miss one in the future. Explaining your situation and providing an update of when they can expect payment can prevent them from taking further action. Of course, it is essential to ensure the payment is made as promised.

We see your vision, let’s help you get there. Sinawe.