A good credit score is important to your success. Here's why.

 

At a glance: A good credit score is critical to financial success regardless of your objectives.

 

You could be:

1. A prospective purchaser of businesses or real estate
2. Self-employed OR
3. An employee

"In Australia, a good credit score is important to be able to obtain finance, competitive interest rates, and financial opportunities." says Daniel Walker, Director of Bon Voyage Credit Repair. "A bad credit score can conversely create difficulties in obtain home loans, business loans and other forms of credit"

 

Whether you are a business owner, an employee or a prospective purchaser of a business, a good credit score allows you to capitalise on opportunities easier.

 

1. The Prospective Purchaser

It is rare to see a good business being bought outright without some kind of financing or credit.

 

A prospective purchaser is often required to obtain some of the funds through credit or loan to buy the business. A bad credit score may see the loan application refused outright despite the business meeting the lender's other criteria. This could mean that the prospective purchaser is forced to pay a higher interest rate for another loan, and/or forced to use his personal assets as security.

 

If the prospective purchaser is obtaining a franchise business that requires the approval of the franchisor, a credit check may reveal a bad credit score and this can affect the franchise application.

 

2. The Self-Employed

Every business has a working capital requirement. Once a purchaser acquires the business, your credit score can affect how suppliers provide credit terms. A good credit score is likely to result in more favourable credit terms from suppliers, such as extended credit terms (e.g. more days to pay your bills).

 

A bad credit score may result in unfavourable credit terms from your suppliers where you could be forced to make payments upfront to suppliers prior to the supply or have less time to make payment. This can create a cash flow crunch for your business where you are required to obtain a business loan or a line of credit. Adding to the woes, sourcing for a business loan with a bad credit score will mean that the cost of borrowings (interest rates and fees) will nearly always be higher. Not to mention, poor cash flow management increases the risk of businesses closing their doors.

 

All these fees and charges will affect your cash flow and ultimately your profits.

 

 

2. The Employee

 

For employees who are using their payslips as evidence of income, a bad credit score is likely to create problems around obtaining home loans and refinancing mortgages. As home loans are regulated under the National Consumer Credit Protection (NCCP) Act 2009, lenders have responsible lending obligations. What's in a credit report tells a story to the lender. A bad credit score may create home loan approval issues for lenders who must comply with the NCCP regulations.

 

A bad credit score can also create issues around obtaining mobile phone plans, credit cards, store cards, and create other inconveniences.

 

Easy steps to improve your credit score 

 

Daniel Walker says that you can take control of your creditworthiness with a proactive approach, "by ordering your free credit report from the credit reporting bodies, thoroughly reviewing it for inaccuracies, and promptly contacting lenders to address errors..".

 

To achieve a good credit score, Daniel shares his seven easy steps to improve your credit score

1. Obtain your FREE credit report from ALL credit reporting bodies
2. Review your credit file for errors
3. Contact lenders to address inaccurate data
4. Negotiate the removal of inaccurate data
5. Stay persistent and follow up
6. Adopt responsible financial habits
7. Consider engaging a credit report company

Whether you are buying or selling a business or property, the take-away is, take charge of your credit score today and set yourself on the path to financial success.

 

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The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisers. Although every effort has been made to verify the accuracy of the information, we disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.