One of the most increasingly common reasons behind business failures is a lack of cash. Businesses require money to fund their operations and pay salaries. Large sums will also often be required for capital investments like purchasing vehicles or machinery.
However, not many businesses have sufficient money at hand to cover large purchases. This then requires them to have to borrow. This can apply to both new and established businesses. Lenders will often judger your creditworthiness based on your credit rating.
Credit ratings are a guide on how well you handle debt obligations. From payment of bills to managing overdraft limits and credit card payments, multiple financial aspects are considered when determining a person’s personal credit rating. The same applies to a business credit score. Business credit scores apply to businesses that operate as limited company’s and are therefore considered a separate legal entity from their owners. If you operate your business as a sole trader, lenders will simply focus on your personal credit rating.
The better personal credit rating or business credit score you have, the lower a risk you are considered by lenders and therefore more likely or make payments as expected. This makes you a good credit risk they will be more willing to lend to at preferential rates.
Every business owner hopes to see their operations grow. This often requires them to find more cash they can invest in their business. Where personal finances fall short, most will turn to finance options to meet this need. However, having bad credit can hamper this effort. It can discourage lenders or attract high-interest rates. Here are some of the reasons people suffer bad credit ratings and how they can overcome this to better invest in the future of their business.
Reasons People Get Bad Credit Ratings
It is quite easy to suffer bad credit. Especially if you are running a business and fall on hard times. With each delayed or missed payment on a loan or other financing, your credit history is updated negatively by credit referencing agencies.
Choosing a credit card with an inadequate limit, high-interest rates, and other fees can also encourage poor repayment that can affect credit rating. Paying just the limit can also hamper efforts to boost your rating. It is better to seek to pay down as much of your credit card debt each month to reduce interest charges and improve credit scores. Bankruptcy and count court judgements can also hurt credit ratings.
How to Overcome Bad Credit
It may seem counterintuitive but one of the best ways to improve your credit score is to seek out more financing and ensure good repayment. This is the best way to prove you are capable of being trusted with others money. Thankfully, various lenders do offer such second chances even when you are generally considered a bad credit risk.
For businesses that require vehicles like vans, opting for poor credit van finance can help. Not only do you get to access a vehicle that will contribute positively to our business performance, but you also get to do so despite being under the cloud of poor credit. You can even opt for leasing arrangements that enable you to enjoy lower monthly repayments or go for hire purchase deals that allow you to secure full ownership of your vehicle at the end of the repayment period.
So not only will you help to repair your credit ratings, but also acquire a new asset for your business that will contribute towards boosting revenues, improving your services, and expanding operations. Zero deposit van finance also helps provide you access to the financing you need without the worry of having to raise a hefty deposit for the vehicle. This financing arrangement enables you to avoid the challenge of having to raise a large initial deposit to put towards buying the van and instead reinvest in other critical areas of your business. It is 100% financing that allows for comfortable repayment and will help you rebuild your credit rating, free up cash for other investments, and can be applied towards tax relief.
Do not just plan on repaying, but also doing so on time and in full. By making good repayment you improve your risk profile so lenders now know you can be trusted in managing credit responsibly. The timelier repayments you make, the more your credit rating will improve.
This applies not just to van financing, but all forms of credit you take up, including credit cards. People are often lax on how they repay on their credit limits. The best approach is to maintain low credit utilisation of about 30% or less and pay on time, every time.
If you have been good about paying bills like utilities, council tax, and into investment accounts, you can also use this to your advantage. Credit rating agencies like Experian allow you to connect your current account so they can review such transactions and use this information to boost ratings. It shows you can be trusted to be financially disciplined, a trait that lenders like and will go towards boosting your credit score.
Sometimes a bad credit score could be a result of fraudulent activity or lack of recorded activity. Check your credit file to ensure you have not been a victim of identity theft or other wrongdoing. You can also check to ensure all details including your name and address are correct.