In many cases interactions with a bank or creditor’s office can go one of two ways, depending on your business’s credit history.
If you’ve had a habit in the past of not paying back your outstanding loans as promptly as possible you may end up in a worse off hole than when you started.
This is largely due to your credit report.
What is a credit report?
A credit report is a cache of your financial history that accurately signposts to businesses or financial institutions the likelihood of a loan defaulting within an agreed period of time.
If your credit report shows signs of an unstable credit history the amount of interest a creditor can tack onto the principal loan can really start to accumulate. Although not always, a creditor uses the information provided on your credit score and calculates the risk involved in loaning you the money.
This can seriously affect the rate of interest, which if too high means potentially taking out a secondary loan or opting out and claiming bankruptcy, which will see all your non-essential assets sold to pay the remaining balance.
How do I stay on top of my credit score?
Taking care of your business credit score is just as important as taking care of your personal credit score, which, if you run as a sole trader, can be one in the same as creditors will take your personal finances into account.
The best way to keep your credit score nice and high is by simply paying any loan you make in full. With this we would suggest splitting your business expenses into their own separate account.
This means that even if you have multiple accounts with a range of fluctuating balances, having your business account squarely at zero at the end of each quarter does wonders for your credit score.
The better your credit score, the more investment opportunities you have moving forward. This can be paramount when aiming towards growing your business further or simply stagnating for the foreseeable future.
The benefits of a credit report
Credit reports are not always such a bad thing as they can help small businesses make important decisions when considering suppliers or business partners.
Before entering into a long term agreement with a client, take the time to check their credit history which will accurately reflect any immediate red flags.
Note, that this practice can be a double edged sword as business flirting with the idea of collaboration can check your credit history as well, so make sure your credit score is high.
For more information on how to keep your credit score on an even keel, get in touch with us today and see what a well maintained financial history can do for your future.