If you are a South African business owner, then you need to understand the importance of building and maintaining a favourable personal and business credit score.
Why is it important to know your credit score?
Statistics show that most South African borrowers (personal and business) are unaware of what their credit scores are. Many don’t know what a credit score is, what affects it and how poor scores affect their ability to obtain credit.
A high score shows that an individual or business is a low-risk borrower and will have a better chance of a successful application. Knowing that your business is low risk could also help you negotiate the best credit terms. It’s not only lenders but also suppliers and your customers that are interested in the financial health of your business.
Knowing your credit score also helps you to bring your data right up-to-date. If your credit score isn't what you'd hoped for, you can aim at improving your score for the future.
Credit providers (lenders in this case) use this information to determine your credit worthiness hence the importance of knowing your score.
How do I get my personal credit score?
This isn’t a daunting task but actually easy to check. South African individuals are entitled to one free credit check per year. These are available electronically from any of the South African credit bureaus. It is vital to check your personal report in order to identify any errors or fraudulent activity on your record.
How do I get my business credit score?
Most credit bureaus offer business credit reports online. Typically, they offer different types of reports based on what you would like to spend and the type of information you want to see.
For example, Experian offers a service called business check. This service gives you quick and simple access to online business reports and director information from as little as R179 for an overview report or R249 for a comprehensive report. Using the code: funding (case sensitive) you will get a 10% discount on your business check.
These reports show non-biased, factual, current information as to how your business treats its credit obligations. Information includes:
Actual trade payment data
Public record information
Comparative data showing a company's payment performance in comparison to the industry it works in
How is my personal and business credit score calculated?
Each lender calculates your score slightly differently based on certain criteria they choose to use. However, most take the following into account:
The amount you owe to other businesses or accounts.
Your payment history - any late payments on accounts (both personal and in your business) where you owe money will be recorded and may lower your credit score.
Information available from public records such as court judgements and liquidations; and
The length of your credit history (more history allows for better analysis of past behaviour).
What can I do to improve my personal or business credit score?
Use your credit wisely. Avoid accessing all your available credit regularly. If you don’t need it, don’t apply. Credit inquiries lower your credit score, therefore applying for unnecessary credit isn’t worth it if you are trying to improve your score.
Pay on time – paying invoices on time is the most effective way to move your credit score positively in the right direction. A large percentage of your credit score is calculated by the timely payments you make so it is something you simply cannot ignore. One late payment is enough to lower your credit score.
Slow and steady – with credit scores, there is no shortcut. But if you put in extra effort for a period of six months to a year, you can move your credit score positively and sometimes significantly.
Why does my personal credit score affect my business loan application?
Most lenders, including banks and alternative lenders, tend to check the level of your personal and business credit score when evaluating a business loan application. They do this because they believe the way you manage your personal finance is the same as how you manage your business finance. If you are paying personal accounts late or fail to make payments altogether, your business will probably be conducted in the same way. We humans are very predictable after all!
Your personal or business credit score is a fair representation of how you treat credit, so it is critical to build and maintain a positive credit score. It might be the difference between you getting a loan or not.
How do I apply for a business loan?
If your business is in need of funding visit www.fundinghub.co.za.
The service is free to use and FundingHub can connect you to over 20 South African lenders, and intelligently match you to the right lender depending on the business need.