Herbert Hoover said: Credit is the lifeblood of business, prices, and jobs. Is credit that important to a business? Can’t a business operate without getting into credit? What if I don’t need credit to operate my business? Here are some things that you should know about credit:
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What is Credit?
Credit is an agreement entered into by a borrower and a lender. A credit is executed with a contract granted by the lender to the borrower. The borrower agrees to pay something of great value that he receives. Payment is entered with terms and conditions that include the payment method and the interests or finance charges.
Bank or financial credit is one of the most popular forms of credit. Bank credits include mortgages, car loans, and signature loans, among others. The bank lends or credits the money to a consumer who agrees to repay at a future date.
Credit is awarded to eligible borrowers. Some of the eligibilities are:
- Of legal Age
- Has a reliable source of income
- Capacity to pay
- Credit history or creditworthiness
More and more people use credits or other types of consumer loans to purchase products and services. Credit companies or credit institutions such as Crediful will help determine your credit eligibility or your credit score to determine if you are eligible for a loan or not.
What is a Credit Score?
It is always crucial for a lender to know the consumer’s creditworthiness before creditors decide to release or approve a loan applied.
A credit score is a representative number based on credit history used to evaluate the borrower’s probability of paying on time. Generally speaking, a credit score is a representation of the borrower’s creditworthiness.
A credit score is a number that ranges between 300 – 850. The higher the score, the better credit decision the creditors can make, making them more confident that the debt will be repaid on agreed time. A credit score of 700 and above is considered good, and 800 and above is an excellent score.
Therefore, the higher the score, the higher the probability that you can avail of any loans. Whether a loan is a personal, business, or student loan, it is of utmost importance to increase credit scores and maintain a high standing.
Your Credit Score and Your Business
Having a high credit score means a high probability of loan grants. Business loans are vital engines to run a business, grow a small business, and even launch a start-up business. When operational funds are a bit constricted, a business loan could help achieve business targets and realize business goals.
Top Three Benefits of High Credit Scores
Generally, a high credit score provides more perks. Lenders are just as delighted to offer you more reasons to avail of loans if you are a holder of a high credit score.
1. Access to best rates and best terms
It helps a lot to know your credit score before you begin your search for a lender. It is determined by the lender how much you are qualified and how much interest rates they will impose on your loans based on your income and credit history. The higher your credit score, the lesser it will cost your mortgage in terms of interest rates. Likewise, the worse the credit score, the higher the interest rate. Therefore, a high credit score means more savings.
2. Unlocks opportunities
With the benefits of holding a high credit score, you can always diversify. Opportunities will find you and not the other way around. You can play around with different loan types from credit cards, financing, secured loans, or personal loans. However, having different loan models will test your ability to manage different types of financing and test your ability to maintain your credit score.
3. Lower Security Deposits
A credit check is a prerequisite when shopping for a new apartment, especially when applying for a lease. During tenant screening, the credit score will determine the perceived collateral or security deposit. A higher credit score does not require a bigger security deposit. The security deposits offset the perceived risk of a loan that the creditors will impose.
While enjoying the benefits of a high credit score, raising your score has its drawback. What could be a more obvious disadvantage is the opportunity to increase your debt. While it is an opportunity, it is also an obvious risk. More loan approvals can give a false sense that you have accumulated more assets; in reality, more debts mean more liabilities.
However, you will encounter a potential drawback if you will not handle loans properly or will not strictly sustain good financial habits. Therefore, to avoid the trouble of financial inconvenience, discipline is of utmost importance.
Takeaway
A high credit score gives many advantages in managing finances, whether personal, business or otherwise. Nevertheless, a high credit score can also ruin your financial credibility when not handled properly. Ultimately, it’s a huge responsibility to maintain your score, sustain your credibility, and keep your peace.
