Your credit score is important: five quick fixes to save you money

If you have a bad credit score, it’s harder and more expensive for your business to borrow money. Swoop’s quick fixes will put it right.

“Don’t think of it as credit, think of it as investment.”

So says Daire Burke, Head of North America at Swoop. 

“An investor is going to want a part of your business for giving you the money. If you borrow instead, it’s your own money to use how you see fit to boost your profits. When you pay back the loan and you’ve grown the business, you don’t have to give the increased profits to anyone else.”

For most businesses, borrowing money is the easiest way to fund the growth of a business as Daire explains: 

“Say your business carries a lot of equipment and you need a truck to get it around. No truck, no work. But if you don’t have any money, how do you buy a truck? This is a strong case for borrowing: buy the truck, pay it back, and you’ll have a profitable business that earns far more money than the cost of the loan.”

Who can get a business loan and what does it cost? 

There is no easy answer to the question: whether you can get a loan in the first place and the cost of borrowing largely comes down to your credit score. This is why having good personal credit is important for entrepreneurs when applying for business financing.

Lenders will only lend if they think they will get the money back. This means that they will evaluate how you use credit, your ability to make repayments and how you have behaved with products such as credit cards and finance in the past. 

What is a credit score? It’s a numerical value based on “the five Cs”: credit history, capacity, capital, collateral, and conditions. Different credit scorers will weigh these elements differently, but the end result is a number – and the higher the number the better your score. 

And the better your score, the easier it is to find someone to lend and the cheaper it will be to borrow.

If you have (or suspect you have) a poor credit score, there are simple steps you can take to improve it. Here are some quick fixes for common issues: 

1. You’re borrowing too little (or too much)

If your score is low despite never having missed a payment, your history might not have enough data to show that you are a responsible borrower. 

Alternatively, you may have outstanding balances that are more than 30 percent of your credit limit. 

Your options: either pay down your balances so that you’re using between 20 and 25 percent of your total credit, or ask to increase your credit limit to put yourself in this range. 

If you’re not using your credit card enough, use it more – but ensure you’re responsible in keeping within your limits and repaying on time. 

2. Your payments are late

This is an easy fix: automate payments so that you’re never late again. It will take time, but your credit score will improve. For credit cards you can set up to pay the minimum amount and you can pay off the remaining balance when you can afford to pay more. 

3. You have held delinquent accounts

A delinquent account is one that has gone to collections. Whether it’s a credit card or an unpaid utility bill, a delinquent account is bad news. 

If you’re behind on paying back a creditor, be proactive: get in touch with them, explain why you cannot make repayments on schedule and work out a plan. 

Even if the debt is with a collection company, making the first move puts you on a strong footing to recover your score.

4. Beware too many credit reports!

If too many credit reports are being carried out at the same time (perhaps because you’ve made multiple loan applications) your score may be affected. 

Swoop can solve this by giving you options for loans that you’ll be approved for automatically. 

If you have a low score, these loans are a great way of demonstrating that you can be responsible with credit – and make your next loan easier to come by. 

5. Was it you?

Fraud and identity theft can unfairly affect your credit score. 

If you’re taking proactive steps to catch fraud or identity theft early, you can address any errors as quickly as possible.

There are free fraud alert services you can use from Experian and Equifax which will notify you of suspicious activity.

Having a good credit score comes down to one thing: the lender needs to know how big a risk they are taking in giving you their money. The lower the risk to them, the easier it will be to close a good deal. 

Staying organised, making on-time payments, understanding penalties and fees, setting up automatic payments and refinancing debt if necessary are all essential if you want to have the full range of options open to you as you grow your company.