How to improve your credit score

It’s the sort of thing that is rarely front of mind, but a poor credit profile can put the brakes on a business looking to grow, limiting your access to business finance or making it more expensive.

It’s common for your credit history to be checked when you’re seeking a business loan to purchase say new machinery or fund a business expansion, adds Business Development and Performance Coach Gaylene Hughes, from JDI Business Coaching.

“In the event that you’re buying an asset, a good credit history may mean you can borrow at lower interest rates when the need arises,” says Hughes.

“It’s important to remember that your personal and business credit history are linked and follow you.”

What is a credit profile

It’s best to think of your credit profile by breaking it up into the following two categories:

Credit report – contains information about your credit history including your credit score, current borrowings, all the times you’ve been given credit by a bank or company, unpaid or overdue loans, court judgments against you, and payment and default history.

Credit score – this score is calculated based on your credit report. Each credit reporting agency has its own formula that usually ranges from zero to 1000, but sometimes as high as 1500. The higher the score, the better.

In New Zealand, there are three main credit reporting companies: Centrix, illion and Equifax.

It’s free to get a copy of your credit report, but like most things in life, if you want the information quickly, you’ll need to pay for it.

How to improve a poor credit score

In New Zealand, you have the right to ask for a copy of your own credit report, and check and correct information that’s wrong.

You can request a copy of your report as often as you wish, and credit report companies are obligated to provide it without too much delay. They can charge a small fee if you want the information within three working days, but not more than $10.

If you unexpectedly find out you have a poor credit score, the first step is to look for mistakes and get them corrected.

If you believe that your poor credit rating is the result of fraud, you also have the right to ask that your credit file is ‘frozen’ and not released to anyone without your permission. You can then complain to the credit reporting company.

The Office of the Privacy Commissioner explains that freezing your report should make it more difficult for a fraudster to obtain new credit in your name, as credit providers will usually not grant new credit when they’re unable to do a credit check.

If your poor credit score is not the result of a mistake or fraud, improving your credit score might take time.

Indeed, a default can stay on your credit record for up to five years, even after you have paid the amount in full.

Rest assured though that credit reports include both positive and negative credit history, so there are steps you can take to improve your credit score over time.

8 tips for improving your credit score

Hughes shares her eight tips for improving your credit score:

  1. Pay bills and make loan repayments on time. “Set up weekly or monthly automatic payments if you can, from an account that’s harder to access.”
  2. Check for mistakes. Everyone makes mistakes, including credit reporting agencies. So make sure they don’t negatively impact your business by checking your credit report for errors.
  3. Manage your cash flow. “It’s important you understand your cash flow and avoid any penalty charges, especially for unpaid or partially paid PAYE, GST and tax to the Inland Revenue,” Hughes says.
  4. Transparency. “If you do get into trouble with creditors, talk to them. They’ll possibly be open to putting a payment plan in place: better to be paid something than nothing.”
  5. Don’t maintain more debt than you need: You shouldn’t be scared of debt, but too much can be your undoing. “Live within your means. Don’t be swayed by sales talk or a ‘special’ that’s just too good to be true. That can result in overcommitting to things you can’t pay off.”
  6. Consolidate. “If you have a credit card, ideally pay it off each month. If you have more than one credit card, consolidate the debt onto one card then cut the others up. Carefully manage any corporate credit cards within the business by regularly reviewing and paying these.”
  7. Know your numbers. “What’s your income and what are your regular outgoings? Live within your means where possible and get some budgeting advice – it’s amazing where you can make savings.”
  8. Follow up debtors. “Regularly follow up people who owe you money and remember it’s not a good thing to have too many eggs in one basket – do work for more than one customer.”

The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.

How to manage small business loan repayments

For the vast majority of small businesses, being able to access cash at the right time is critical to keep your business going and growing.

A small business loan is one way to access that cash. Follow these tips to ensure you’re putting your best business foot forward when it comes to getting the most out of your small business loan.

Manage your cash flow carefully

Cash flow is important to the success of any small business – this you know. So it pays to keep it front of mind in the good times, and the bad, especially when you have loan repayments to consider. Keep a close eye on it by:

  • Issuing invoices on time – the earlier you invoice, the earlier you’ll get paid.
  • Regularly updating all other accounting and reporting – this will ensure you’ll notice any issues sooner and have them fixed faster.
  • Building a cash reserve, if possible – it’s always good to have something to fall back on should the unexpected happen. It will also stand you in good stead during seasonal slumps.
  • Projecting your cash flow well in advance – a cash flow calculator tool will be your best friend in this.

Get ahead of the game at peak times

So, business is booming? Great news. And while it may be tempting to celebrate, now’s the ideal time to consider paying more towards your loan. After all, it’s a move that will save you a significant sum of money down the track.

Let’s take Alison, for example. She’s a restaurant owner, has a $50,000 small business loan that she’s paying off at a rate of $600/week over 1 year and 9 months. Her business is doing well and she could pay more, but she’s just cruising at the agreed rate.

Alex, a mobile handyman, has a $50,000 business loan that he’s paying off at a rate of $600/week over 1 year and 9 months. His business is booming and he decides to add $200 to his repayments. This saves him $1,000 and he pays the loan off 5 months early.

Note: These are examples only and general in nature.

Keep a strong credit score

Good credit makes life much easier for a small business owner. Having a great credit report will open up more options when it comes to accessing finance, and has the potential to save you money in repayments.

Build and maintain a good credit score by:

  • Scheduling reminders to ensure bills are paid on time.
  • Limiting repayments by consolidating your credit cards.
  • Keeping a close eye on your credit cards by not hitting the limit.
  • Going over credit card bills with a fine-tooth comb so you can address any errors.

If your business is ready to take the next step, talk to Prospa today on 0800 005 797 or apply online for a small business loan.

The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisers. Although every effort has been made to verify the accuracy of the information, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.

How to get a business loan

Four quick hacks for business owners when applying for a small business loan

Obtaining finance can be challenging for small business owners, especially as cash flow challenges are common when the business is in its early stages. If you’re a NZ small business owner and you need to access business finance, these four tips could get you closer to being approved, not declined.

1. Dig up your documents

Traditional lenders in New Zealand will demand all paperwork relevant to your business’s prospects of success and won’t begin to assess your application without it. These may include a business plan, competitor analysis and financial statements like P&L, cash flow forecast, revenue projections and much more.

Online NZ lenders like Prospa, however, go out of their way to make it easier for small businesses. Unlike traditional lenders, the entire loan application process is much simpler, and depending on the amount you want to borrow, fewer documents are required. And that means you can spend more time focusing on growth opportunities.

2. Check your credit score

Credit history is usually one of the most important factors for a traditional lender. NZ banks will obtain a copy of your credit report, so it’s crucial you examine yours before applying. Otherwise you may not understand what sort of negotiating platform you’re starting from.

Even if you think your record is clean, double-check it to ensure there are no inaccuracies or nasty surprises. You may not be aware that every time you apply for credit and a credit provider obtains a copy of your report, an enquiry is logged. Credit providers may take a negative view of multiple inquiries made in a short space of time, which may affect your ability to obtain credit (and indeed the interest rates you are offered).

You have the right to obtain your credit score and request a copy of your credit report to correct any wrong information. There are three credit reporting companies in New Zealand:

3. Master your business pitch

Obtaining business finance from a bank is essentially a pitch. You’ll probably need to sell yourself, your business and your plans for the future, while being both professional and passionate.

This can be daunting for those with little experience presenting or selling. It’s a good idea to rehearse and think of any possible questions or shortcomings that might be brought up. It also pays to be ready with evidence that can back up how you will overcome specific business finance issues. One way to do this is to prove your ROI or showcase your business growth in easy-to-read graphs and charts.

Fortunately, getting a small business loan from Prospa doesn’t require a pitch. Once you explain the intended use of funds, Prospa will see if you meet its lending criteria by determining if your business has the cash flow to support repayments.

4. Know your security

Traditional lenders often require the borrower to offer an asset as security upfront against the loan. This could be a property asset, or another asset like a vehicle or piece of equipment.

Before locking your home in as upfront security for a small business loan, you should always consult with those who will be most affected, like your family or business partner.

And if you aren’t comfortable locking your house in as upfront security under a business loan contract, then there are trusted online lenders that offer small business loans that don’t require upfront security to access the funds. This option may be more appropriate for you.

When opportunity knocks for NZ small businesses, there’s a range of new choices for raising funds. Prospa can help you access the funds to manage cash flow or take advantage of opportunities when they arise. Talk to our NZ small business lending team on 0800 005 797.

The information on this website is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information or any loss or damage suffered by any person directly or indirectly through relying on this information.