A clean credit score is not only critical to the customer-supplier-relations, but also plays a vital role in finance applications. The more ‘creditworthy’ it appears, the more potential the application has of being successful.
Credit score, in a nutshell, represents financial stability and is often used as an indication of ability to meet repayments in a credit agreement.
There are numerous factors that affect both personal and business ratings, so it is important to be aware of these and know what to do to avoid unnecessary stains on the credit score report.
- Don’t bury your head in the sand – Coming to terms with important financial information might seem daunting, but it’s always better to be aware of the situation and act on it accordingly. It is important to check personal credit reports as often as possible, depending on the credit bureau in use, it may be charged a nominal fee. Each bureau will take different factors into account to calculate the score, so try to check a few to form an accurate picture across the board.
- Analyse weaknesses – Credit scores are on a scale of 300 (worst) to 850 (best). Any reasons to be penalised will also show up in the report, so ensure take note of these and work forward to rectify them or try to avoid making the same mistake in the future.
- Ensure all information is up to date – When the business details change, it’s vital to inform all the necessary parties, especially Companies House. This information is used on the credit score file and failing to update records could be perceived as an attempt to commit business fraud or identity theft. By simply being proactive, it can save a lot of hassle and unwarranted damage to the personal and business reputation further down the line.
- Beware of footprints – The Federal Fair Credit Reporting Act states that only those with a ‘legitimate need’ can request a copy of an individuals credit score report. However, that report will show how many times the report has been accessed, even if the application for credit is declined or a decision to not go ahead is made. Whilst this is not detrimental to the score, lenders like to see the investment of own money and don’t solely rely on credit. Be wary of the footprints and ensure the application is necessary before going ahead.
- Pay promptly – Try to ensure that any money owed is paid promptly. This will show lenders the individual is sensible and able to take on the commitment and meet repayments on time. It’s equally important that any tax returns are filed correctly and punctually. If the gathering of information is a struggle to gather, involve an accountant or advisor on board to help – it’s simply not worth missing the deadline! If it’s a case of insufficient cash flow delaying the returns, remember Johnson Reed’s unsecured loans can offset the urgency with a short-term solution, allowing you to make smaller repayments over an agreed term.
- CCJs – A County Court Judgement (CCJ) is a court action taken against an individual by a party that believes they’re owed money. Being proactive with all accounts and keeping track of payments should avoid CCJs rearing their ugly head, but if action is taken, try to be resilient and settle the issue within 28 days. Outstanding payments can stay on a file for up to six years and affect how potential lenders view future abilities to meet repayments.
- Maintain personal finances – Business and personal finances are not always unrelated. Providing a personal guarantee when applying for a bank loan, for example, it will be a personal credit file that gets searched and an undesirable score could result in a decline. This aside, a personal credit score will impact the financial credit available to access outside of the business, whether it’s for a credit card or simply a monthly payment plan for car insurance!
Johnson Reed have always prided themselves in the ‘common sense’ approach to underwriting. With effective time taken to immerse themselves in the individual situations as well as the business, before drafting the applications and placing it with the suitable lenders. Unlike some banks, they don’t base the application solely on the credit score.