Credit score: to hard-headed businesspeople who have a good score themselves, it’s a great way to assess someone’s creditworthiness. To those who have a bad rating, it’s 21st century fascism, the new snobbery. But just like school exam results and college degrees, your credit score is going to follow you all your life.
The difference between your credit score and your qualifications is that the score can fluctuate. It can go from good to bad in the heartbeat of a financial collapse or a failure to repay a debt on time.
It’s your responsibility to improve your credit score so your business can survive the storm should you need an extra injection of cash from a lender. The following are some tips to improve your score and open more opportunities financially.
Know What You’re Doing When Co-Signing on a Loan
Do you have a child who is planning to get funding to go to college? Unfortunately, sometimes a student is unsuccessful in their application for a loan because they don’t have a reputation yet: they have never had a bank account or only used it in dribs and drabs, paying in some part-time job earnings and immediately using the money to buy clothes, meals, earbuds or whatever.
When this happens, the lender may suggest getting a parent to act as a co-signer, taking joint responsibility for paying the loan back, just in case things don’t go the way everyone hopes they will, and the student cannot comply with the terms.
Most parents will immediately want to come to their child’s aid, because it’s a natural extension of their parental responsibilities, which have always involved paying for things anyway but, as a parent and potential co-signer, you need to think about the impact on your credit. Your young would-be entrepreneur may turn out to be a huge success, but there could be hiccups along the way. The finance world is an unsentimental one and co-signing, while admirable if you want to think about it that way, is also a risk.
Therefore, your own credit score may be adversely affected, not by any misdemeanor or lack of integrity but by the mere presence of a financial risk. This is an often-ignored cause of a reduced credit score, but when it happens, you will start thinking how you can repair it as the future of your business may depend on it.
Check to See if There Has Been a Mistake
Some go through their receipt at the store to see if they’ve been charged for something they haven’t bought, or an item has been charged twice. They’ll do the same in a restaurant. It’s a good idea, but many of us just look at the total, gasp, complain to our partner but not the store or restaurant and pay up. Mistakes can happen with credit scores, so go through your report thoroughly and get as much detail as you can and see if some error has crept in. Then get it rectified.
Pay Everything on Time in Future
If you’ve been making minimum repayments on credit cards, change your attitude, bite the bullet every month and pay the full amount. You’ll save money in the long run and it’s what the finance world wants to see, so your score will start to rise. If you struggle to understand exactly why this is a big deal, read through your credit card statement every month.
There will be a space on each statement that shows you, if you never make another purchase, how much you will repay over time at that interest rate by making only the minimum monthly payment. In some cases, $3000 of debt can cost you upwards of $10k over time. While you might not think that there is any room in your budget to pay off a card in full, in the long run it is more beneficial to struggle for a few months in order to pay less in total interest over time.
Cancel Cards You Don’t Need
It may be reassuring to have more than one credit card, but it just means more debt and less impressive form. Consider what a suitable number of cards looks like for you and choose the card with the best terms and scrap the others.
There are sometimes penalties for canceling cards so be sure you understand the entirety of the process beforehand, but even if there are slight cons that go along with this, they cannot possibly be greater than the con of having vast amounts of debt spread across multiple cards that you are struggling to manage.
Use Savings to Pay Off Monthly Debts
While it is good to have money in the bank, earning interest, it might be more economical to use some to pay off your card balance. Then start again with more self-discipline and don’t allow debts to build up again. It is possible to both save and pay down debt at the same time. However you need to prioritize.
If your budget allows $500 to go towards a certain category, decide which is the most important and split up the $500 accordingly. Perhaps you can pay $400 towards high-interest debts and $100 towards savings. That way you are contributing to both goals but still making moves that will positively impact your credit history and overall debt-to-income ratio.
Confront the Issue Head-On
There are credit-building accounts and cards designed specifically for those with bad credit. Getting one of these at least indicates you know you have a problem and you’re trying to rectify the situation.
There are two bad guys in the financial world: the one with no respect for contracts and responsibilities and, just as bad in terms of credit score, the one who hides their head in the sand rather than confronting the reality of the situation. It happens.
People get into financial trouble for a huge variety of reasons, but it’s not the end of the world. If you’re suffering credit-wise through no fault of your own, talk to people about it and take any steps necessary to improve your situation.
