Using credit cards to pay for large expenses is not only practical, but it’s also necessary for a large portion of society. That’s because credit lines are essentially loans from the bank that you will pay back at a later date, a lot of the time with an interest fee.
Paying back your credit card fees at the time they are due shows the lender that you are a trustworthy person, and it increases your credit score for future financial endeavors. Borrowing money is an essential component of a healthy pocketbook, and not paying back your loans indicates to others that you are not a responsible person.
This can be catastrophic for business owners and entrepreneurs who want to take out lines of credit to start their company or fund a purchase. You won’t be able to take out a business loan application at the same rate that competitors do, losing ground in the process of your brand building.
We’ll cover the ways that you can take control of your credit score. We will look at all the benefits of staying on top of your loans, from the personal and the business perspective. We can also give a few extra tips on how high credit scores produce positive results in other areas of your life, like trying to take out auto or homeowners insurance for yourself and your company.
Why do credit scores affect business loans?
We already touched on this a little, but lenders read into the meaning of a credit score beyond the simple number on the sheet (although they would like your credit score to be at least 680).
You may be wondering why a poor personal credit score would have anything to do with you trying to take out money for your business, but it’s actually quite self-explanatory. Entrepreneurs try to develop brands that are inspired by their visions of the world and the way consumers should interact with the world.
Building a business is inherently personalized. A bank is not going to trust the foundation of your business and provide money for you to grow that business if you don’t believe in it enough yourself to pay off debt.
A good credit score shows the lender that you are committed to the work that is trying to be accomplished. In turn, they will trust that you are going to pay off your debts because you believe in your brand.
This is a relationship that feeds off itself. When you build great credit after many years as a business owner, your lender will give you much larger lines of credit. This allows your company to invest more money into a variety of resources, giving you the excess it takes to pay back the money you owe the bank.
Do you see the cyclical nature of the credit score carousel? It’s fun to be responsible, isn’t it? Mature credit users have the financial freedom to hit home runs and aim for even greater successes in their futures.
You are putting yourself in a hole that is hard to escape from if you don’t build good credit early on. Ask a financial advisor how to take the next steps in developing your credit card smarts, or just get some tips from a friend who has used credit for a while.
What else will my credit score affect?
People who have bad credit fail to see that they are depriving themselves of the convenience to borrow money at a moment’s notice. From buying the highest quality cat food at the grocery store to enjoying a trip to the Bahamas on your cashback card, it is a deserved luxury of modern life to enjoy the benefits of credit.
These are all casual things that we mentioned above that bad credit negatively impacts, but there are more serious personal and professional items that will suffer if you don’t keep up with your credit card payments.
You may find yourself getting increased rates from your insurance companies if you pay for your monthly premiums with credit cards and they suddenly no longer are able to get money from the card.
This is because so many people put their premiums on automatic payments, which requires a card that is constantly paid off. You may lose coverage if your insurance company runs your card and cannot access the funds because you have low credit and lost your ability to pay in credit.
This is when you should make a tough decision: You may not want to handle cash as your main source of paying for products and services, but it may be the only option you have if you can’t maintain and build a good credit score.
Talk to your bank about the pros and cons of using debit cards versus credit cards. Debit is like using cash in the form of a card. The money comes out of your checking account instantly, but this also means you reach a similar dilemma as with credit: making sure sufficient funding is in your checking account.
Having credit to fall back on when you don’t have money from a payday or you haven’t put in your recent cash deposit from Christmas is imperative to paying bills, buying supplies, and funding daily expenses.
Both of the options go hand in hand to round out a smart, financially independent person. Not having enough in either your checking or your credit funds will lead to you scrambling for money at the worst possible time.
Being a Mature Adult: the Impact of Credit Scores
Having a good credit score is vital for living a fruitful adult life that gives you financial security and independence. You have more job options, better entrepreneurial prospects, and the flexibility to have fun when you can pay with credit as well as cash.
Talk to your bank about how to build good credit and they may be able to suggest certain types of cards that have lower interest rates. This will allow you to get your feet off the ground before worrying about paying all the debt back. If you are diligent to learn about credit scores, there’s nothing to worry about.
Shawn Laib writes and researches for the loan comparison site, Loans.org. He enjoys helping young people figure out their financial futures and aiding them in their credit score understanding.
