At one time or another, you may have to apply for a loan or overdraft to expand your business, buy equipment or finance some other aspect of your operations. This is when having a good credit history becomes very important.
Establishing and maintaining a good credit record takes time and can be challenging during tough financial times. This is why you should not obtain credit for unnecessary expenses, as it can become tempting to spend more money than you actually have, for things that are merely a “nice to have”.
Using credit from one source to pay debt from another is also aggravating a vicious cycle.
Getting a credit footprint
In order to get credit, you must have a credit history. If you've never bought anything on credit, consider applying for a business loan or business credit card to establish a credit history for your business.
You can then start building a track record, i.e. a good track record. To do this, only spend as much as you can pay back and always pay by the due date, which will show that you are responsible about handling money and take your debts seriously.
Don't take out too much credit, as this will negatively affect your credit score. Most creditors will generally approve you for more credit than you can realistically afford, so try to use no more than 50% of your credit. Remember, the more debt you have, the more you are putting your business at risk when times get tough.
If you can’t make payment, for whatever reason, contact your bank or creditor, explain your situation and make arrangements accordingly. Most would settle for a small payments rather than no payment at all.
Facing the credit brick wall
If you are declined credit, find out why. You could be turned down for various reasons, including not meeting the creditors' minimum income requirement or not having been at your current residence or job for the required amount of time.
You could also be rejected because your business - or you in your personal capacity – is black-listed. If this is the case, you will have to try and get this record cleared, or you will have problems getting credit from anyone for anything.
The National Credit Regulator’s website contains information on how to check your credit record and the details of credible Credit Bureaus in South Africa. Make it a habit of checking your record every now and again, to make sure that it is accurate.
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