“A positive credit score can improve your ability to obtain financing, and spot weaknesses among suppliers, vendors, competitors and employees.”
– Gary Stem, Small Business Review
$1 – What is a credit score?
Credit scores help a bank determine the probability that you will pay back your loan. Credit scores range between 300 and 850 with the standards of each range depicted in the diagram below. Your credit score is determined by how quickly you pay off obligations (such as loans or credit card payments), your consistency, the amount you borrow, the number of credit cards you own, and the length of your credit history. The sooner you start building a good credit score, the sooner you can start building your business.
$2 – How can you improve your credit score?
To achieve a good credit score, it is important to make the monthly payments on time. Having a late payment or missing payment can negatively affect your credit score. Also, defaulting on any loan (including student loan, home loans, or car loans) could ruin your credit. Most individuals starting a small business use their own credit score to obtain a start-up-loan. How you spend your money now will determine what funding you can receive in the future for your company. According to Stuart Atkins, you should try and only use “40% of your credit limit.” By keeping a manageable amount of credit, you can successfully pay off your debts in a reasonable amount of time and continuously increase your credit score by showing you can successfully and consistently manage your balances.
$3 – What are the effects?
A small business needs a good credit score to acquire start-up funds. With a good credit score you can obtain a better interest rate and possibly a higher loan amount. It is difficult for a small business to compete financially with other businesses if it is unable to acquire funding. A good credit score reflects positively on your business. Try to work with other companies and suppliers that also have good credit to ensure that they are reliable and will be able to meet their current and future obligations. Dun and Bradstreet (http://www.dnb.com/) can be used to view credit reports of companies. A good credit score can help a small business develop good relations with lender and suppliers for future projects.
Read more about how credit scores affect small businesses in Gary M. Stern’s article “Knowing your Credit Score Can Pay Off”
http://smallbusinessreview.com/finance/credit_score_financing/
“When your debt goes up, your score goes down. When you pay a little off it goes the other way around.”
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Note: The preceding post was written and researched by students in my Honors Marketing 351, Fall 2011 class, from the Mihaylo College of Business and Economics, Cal State Fullerton University, Fullerton California. Many thanks to their time, talent, and contributions to both their career and this marketing blog. Go Titans!
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