If your record of loan repayment isn’t where you need it to be, you must do something about it . How to build a good credit score guide are going to help you.
Improving your credit score requires some serious efforts, yet the sooner you address the issues that may drag them down, the quicker your financial assessments will go up.
Your credit score – a three-digit number which enables moneylenders to choose how likely it is to grant you loan or credit card. The higher your scores, the more certain you are to fit the bill for credit cards and loans at the most positive terms.
What defines a good credit score?
Credit scores, also known as FICO ratings, are utilized by moneylenders, including banks giving home loans, charge card organizations, to settle on choices about whether to accept your request, (for example, to grant you a Mastercard or credit) and what the terms of the offer would have to be, (for example, the financing cost or upfront installment) of the loan.
FICO assessment of 700 or above is considered as a good credit score. If your score is 800 or above on a similar range, it is viewed as great. Most financial assessments fall somewhere in the range of 600 and 750. Higher scores speak to more readily credit choices and can make loan bosses sure that you will reimburse your future obligations as concurred.
Why do you need a good credit score?
A good credit score makes you a credible candidate for the bank. It reflects on your history of handling your liabilities and whether you can be trusted to meet your obligation on time. A solid score clears your passage to gain a credit line for your business or to be approved for a credit card for personal use.
Not only that, a good credit score can also help to negotiate your interest rate. If you have a good credit record, you have better chance of getting lower interest on your loan from the bank.
How can you build your credit score?
1. Only Borrow what you can afford
Start small! Take small amount of credit and pay off on time. Maintain this strict schedule without missing deadline even for a day. This will present you as a capable borrower to banks and lenders. They would see this credit behavior to ensure that you know your borrowing limit and you are responsible on your dues.
2. Start early Banking
Open a bank account as soon as you start a business. Your steady bank record play a leading factor to build your credit score much faster as compared to those who do avail banking system much later.
3. Ensure all Collection via bank
Make all your transactions via bank and transfer all your collections directly to your bank. This way, the bank can have the full picture of your financial health and you can create an economically stable image of yourself to the moneylenders.
4. Embark on e-payment:
Adapt to e-payment to make payments in real time to meet your dues. Taking quick initiatives by e-payments will show your efficiency on settling debts. It will add value to your credit score and make you qualified as a potential borrower.
5. Ensure to have accounting software
Use accounting software to have a record of automated reports and analysis of your business. This will help you to track cash movement and provide guidance when to settle your credit without putting a dent on your credit report.
6. Do not mix personal and business transactions
Don’t fall into the trap of mixing your personal and business finances. Keeping transactions separate does seem like a lot of extra work but mixing the two can jeopardize the limited liability status of your business and lower down your credit score.
7. Ensure Regular Payments
Clear your payments at regular intervals to maintain a clean slip with the bank. The cleaner your credit history, the easier it is to build a reliable image to the lenders and boost your credit score in the process.
8. Spend time managing finance
Take time to consider where and how you would be spending your money; this will help you to foresee upcoming expenses and whether you have enough money to cover them. Sit down for your finance once in a while, to plan your debts appropriately. When bank sees that you can judge your borrowing capacity, it builds your credit score automatically.
9. Obtain credit lines which are easier to manage
Take time to think about the loan you are going to take from the bank. Get a credit line which you can easily afford and can confidently bear the cost. This will reduce your defaulting chance to zero and in turn boost your credit score further.
10. Ensure proper conduct
Employ correct rule to obtain your loans and discuss business matters only with professionals such as your accountant or lawyer. Playing by the rules will build your picture as a law-abiding individual and help your credit score to grow.
11. Make timely updates in financial records
Update your financial records regularly to portray a steady financial status at the end of a certain period. It offers an overview of your liabilities and assets that adds value to your credit report due to transparency.
12. Time Your application carefully
Each time you apply for another credit extension, a hard inquiry is pulled on your report. This sort of request brings down your score. As a rule, the impacts of a hard request last somewhere in the range of six months to a year and it remains in your credit report for as long as two years. So, don’t apply for frequent credit extensions. Spread it over the years so that it does not affect your credit score.
If you start making improvement on your credit score today, it will take at least a couple of months to show results. On the other hand, if you mess up your score today, it will take you more than a year to fix it to an acceptable level. So, aim to improve your credit score rather than fixing it.
To play safe, don’t incur credit if you cannot bear the cost and plan your payment schedule to meet your debts on time. If you default on payments, lenders will be reluctant to give you money in the future. Your business will suffer until you get on your feet, which may literally take valuable years of your life. So, use our article and make baby steps to improve your credit score and serve as a potential candidate for lenders.
Malaysian Businesses or individuals may also check their credit rating with CTOS Data Systems Sdn Bhd .