A credit score can sometimes be pretty confusing. It may seem like a random number the banks assign to you to determine how good you are at paying your bills and it determines your fate in business (or at least in getting a loan).
At the same time, we are taught not to spend more money than we actually have. It seems like a perfectly good advice, but getting loans and paying them back on time may be the only way for the lenders to determine that you’re trustworthy enough.
What is it exactly?
A credit score represents the statistical method used to determine the likelihood of you returning the money you’ve borrowed. There are different ways to get the actual number and it depends on the agency that makes the calculation. The term FICO score refers to the same number and it’s called that way because of the software used to calculate the score.
The primary way of calculating your score is to take into account your payment history, current debts, how long it usually takes you to pay back the loan and what types of credit you have had.
What is it used for?
The importance of your credit score depends on what institution is asking for it. Some won’t ask at all, while others would alter their services based on your credit score. There are employers in certain industries that ask for it and use it to determine whether a potential employee is trustworthy. There isn’t a clear correlation between the two, but that’s for the employer to decide.
The banks ask for your credit score most often and they use it to determine your interest rates. The lower the credit score, the higher the interest you would pay.
How important is it for an entrepreneur?
Well, it is surely highly important, especially when you are a startup founder and looking to fund your startup immediately. Moreover, in the case of a business emergency, a high credit score can help you obtain cash faster.
How to keep the score high?
If you’re starting from scratch, meaning you never had any credit to your name, the main goal is to establish that you will pay your bills on time. Start by applying for a secured credit card. It’s used like any other credit card, there’s interest and you need to pay each payment on time, but the deposit for the card comes from your own pocket and you get it back after you close the account.
You could also apply for a “credit-building” loan, which is basically a forced saving account with payments reported to the credit bureaus.
How to repair a low score?
Once your credit score has become too low for banks to accept you for loan applications or to set you a reasonable interest rate, you need to take active measures in repairing the score. This is something that gets more complicated with a longer financial history and at some point, you might need the help of professionals like the ones from Clean Credit.
The approach to each bad credit score depends on the circumstances of the person who has it and the experts from Clean Credit are willing to dig deep and deal with every issue individually until your finances are up and running again.
Once you’re back on track…
Once you’re back on track, the work isn’t done. You need to stay on top of your obligations if you want the score to remain in the green. This isn’t that hard, especially if you’ve been taught by the bad experience.
Spread your repayments so you can pay back the debt and still have enough money for utility bills, rent, and so on… Don’t miss a payment of your old debts as well as your recent bills and you’ll do just fine.
Credit score could be pretty important if you want to get a loan or a job at a high-end company, so make sure you’re responsible with your money.