A credit score is a number that shows how eligible you are to receive credit. This score is based on your financial history. It is usually in the range of 350 – 850. According to FICO, the average credit rate in the US as of 2021 is 712. From 800 to 850 are considered to be excellent credit scores.
Although 712 is a good score, most people don’t fall into the excellent category. And this limits their purchase power. This is because most of the biggest purchases we make are on credit. Purchases such as car payments, a house, college tuition, etc., heavily depend on your credit score.
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This is why most people need affordable credit repair services to help increase their purchase power, whether business or personal. Most businesses cannot survive without trade credit. Therefore, having a high credit score which indicates good financial health, helps reduce the interest rate of lenders and vendors.
Every business has stakeholders. And every stakeholder is invested in the day-to-day activities of your business. Any fluctuation in your credit score will change how these stakeholders conduct business with you.
Various Factors Of Business That Are Dependent On Your Level Of Credit
Your credit score is more than just a measure that banks and lenders use to determine your ability to repay debt. It also determines the way every aspect of your business is conducted.
Every contributor to your business is interested in your credit score balance. Business as we know it cannot be done without credit transactions. So our stakeholders knowing our credit records will always help them know how or if they can do business with us.
Here is a list of parties to our business who are interested in the level of our credit score;
1. Suppliers
Trade credit with suppliers is an integral part of a successful business. No vendor wants to risk financial loss by lending to a customer with a low credit score.
And the few who are willing to take the risk with such a customer usually spike their interest rates. The more the danger, the higher the reward.
Being able to trade on credit without worries of incurring high-interest rates is invaluable. Here are some of the benefits:
- You will be able to adjust to any change in demand and supply
- You will have quality inventory control
- You will be able to take advantage of discounts for early payments
- It reduces the need to go to the bank for loans.
Having a low credit reduces the trust suppliers have in a company. In addition, it often causes them to demand payment on delivery, which is detrimental to a business’s cash flow.
It’s therefore essential for one to fix up their credit scores if they are planning to have a successful future.
2. Bankers
Getting funding for your business is one of the biggest headaches for owners. Yet, funding is essential for startups and young companies.
Also, when a company decides to expand, it’ll definitely need funding to acquire a presence in new markets or expand the scale of its business. The importance of money cannot be exaggerated.
A good credit rating can give your company an advantage over those with bad ratings.
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Those with low ratings are usually charged with a high-interest rate, as they are seen as a high-risk customer.
3. Insurance Companies
When a business has bad ratings, it is deemed that the company is poorly run. As such, the insurance rate for covering the business liabilities will naturally be higher. On the other hand, a business or person with excellent credit ratings is seen as a good investment from the insurance company’s perspective.
If you have been having issues with getting reasonable rates with your insurance company, it might just be that you require a credit repair.
4. Investors
If someone is about to partner with you on your business, it will be of utmost concern to them to see what they are going into. Seeing that the company they are about to invest in has a problem with clearing off debts or paying as at when due, investors might be scared off.
As a business owner, you should be aware that your credit score is an overview of the general financial health of your company.
5. The Competition
As allies to your business are invested in your level of credit, so is the competition. Having a low credit score gives a general sense that a business is not doing well.
Therefore keeping your credit level at an excellent score can give you a psychological advantage and improve your margins. In addition, if you can keep your credit level higher than that of competitors, then you have an added advantage over them.
What Factors Affect Your Credit Score?
A lot of people don’t know what affects their credit score. Or even why they have a hard time getting loans.
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Brokerage
If you’re looking to open a brokerage account, an account for stockbrokers, you’ll want to be aware of how your credit score will be impacted. A brokerage account is considered a type of loan, and as such, can affect your credit score in one of two ways:
- If you have a high credit score, a stockbroker account can help improve your score. This is because stockbroker accounts show that you’re a responsible borrower who is able to manage different types of credit.
- If you have a low credit score, a stockbroker account could hurt your score. This is because stockbroker accounts add to your overall debt load, and can lower your credit utilization ratio.
Overall, then, it’s best to open a stockbroker account only if you have a good to almost perfect credit score and are confident that you can manage the account responsibly. If you’re not sure about your credit score or are worried about how a stockbroker account could affect your credit, it’s best to speak with a financial advisor that’s knowledgeable on stockbrokers before opening an account.
Other factors that can affect the level of our credit scores are:
- Payment record: late payments, missed payments, etc
- Credit history length
- Credit usage
- Debts
- Tax liens
- Being a guarantor to someone with a bad credit record
Paying your bills on time, clearing out your debts, and updating your credit records always helps to improve your credit health. Before you can get a new loan, your credit history is checked until 36 months before the date. This means that the process of increasing your credit score actually takes time.
Cultivating habits of reducing your debts to the bare minimum and general healthy financial habits culture brings your credit score to the levels you desire.
Conclusion
Excellent credit helps businesses grow, save money, and have access to funding.
Keeping your credit at an excellent level can’t be overstated. Throughout this article, we have seen that having a good credit score always puts one a step ahead of the competition.
If your credit score is not at a level you are satisfied with. You are advised to hire an expert in credit repair services to help.
You have to monitor and restore business credit to ensure future success constantly. I hope this article has been of help, and we have seen the importance of keeping our credit scores high and its impact on our businesses.
