If the bank says NO, DFS can get you a YES!
Maintaining a healthy credit score is equally as crucial for individuals as it is for businesses. A strong credit rating can be the foundation for businesses to access financing, negotiate favourable terms with suppliers, and establish trust among potential partners and clients.
In Australia, just like in many other countries, a strong business credit score can significantly impact your company’s growth and success. In this article, we will outline several effective strategies to help you fix and improve your business credit score in Australia, and discuss what your options for financing may be while you’re still on the path to credit recovery.
There are a number of credit reporting bodies in Australia. Credit scores range between 0 and 1,200, depending on the credit reporting body. While there is no hard and fast rule with credit providers around what constitutes a ‘good’ or ‘bad’ credit score, generally speaking, a score that’s over 850 is considered to be excellent, with scores above 660 recognised as ‘good’.
By this methodology, any score that sits under 600 or so would typically be considered a poor credit rating.
Here are some of our tips to say goodbye to bad credit and give yourself or your business a financial fresh start:
The first step in improving either your business credit score or personal credit score is to gain a clear understanding of your current position. Obtain a copy of your credit report from the major credit reporting agencies in Australia, such as Equifax, Experian, or Illion. Review the report carefully, ensuring that all the information is accurate and up to date.
You can approach a credit reporting body directly, or use credit reporting agencies and organisations such as Credit Smart to obtain a copy of your credit report. For your personal credit history, credit reporting agencies are legally required to provide consumers with a free credit score report once every three months.
Consistently paying your bills on time is one of the most crucial factors affecting your credit score. Late payments can have a negative impact as they are listed on your credit file and may lead to defaults or court judgments against your business. Implement a robust system for invoicing and payment reminders to avoid any oversight. Set up automatic payments wherever possible to ensure timely settlements.
Excessive debt can hinder your credit score. Especially for start up businesses, it can be easy to fall into credit card debt as you try to get your business off the ground. Developing a debt reduction plan that allows you to allocate sufficient funds towards clearing outstanding balances is the best way to get on top of outstanding loan or credit card debt.
There are several ways to go about reducing your debt. Some businesses look at the debt avalanche method or debt snowball method, while others borrow money to make debt management easier through a debt consolidation.
Minimising your debt-to-credit ratio demonstrates responsible financial management, which positively influences your creditworthiness. One of the biggest pieces of negative information on credit reports is making excessive credit applications. You don’t necessarily need to be debt free before you make another credit enquiry, but it pays to make sure that your credit health is up to scratch before you apply for new credit. If you have any existing personal loans or business loans, you want to be able to demonstrate to future lenders your ability to comfortably meet your loan repayments.
Perhaps obviously, building a positive credit history is essential for improving your business credit score. Consider establishing credit accounts with suppliers or vendors who report payment activities to credit bureaus. Regularly utilising and repaying these credit accounts demonstrates your ability to manage credit responsibly and boosts your creditworthiness.
It can take time to repair a bad credit rating, so it’s important to remember that building a solid credit score will take time through consistent positive credit behaviours.
Maintaining a clear separation between personal and business finances is crucial for establishing a solid credit profile. This can be tricky, especially for sole traders, however, opening separate business bank accounts and credit cards can help ensure that all business-related expenses and income are appropriately segregated.
For start up businesses in particular, they usually need to take out personal finance using the strength of their personal credit report and inject those funds into their business. Unfortunately, this can detriment a business owner’s personal financial situation, leading to negative listings on their personal credit file.
Regularly monitor your credit reports for any inaccuracies or errors that could negatively impact your credit score. If you identify any discrepancies, promptly contact the credit reporting agency and provide supporting documentation to rectify the errors. It’s essential to keep a record of all communication to ensure that corrections are made in a timely manner.
Did you know: Inaccurate personal information on your credit report can negatively affect your credit rating? Sometimes, in loan applications, if there’s a typographical error in your personal details, this can drive your credit score down. Details like this are an easy and quick fix.
Understandably, lenders and credit agencies look favourably upon businesses with stable financial positions. We understand that this is often easier said than done in the world of business though! However, if you can demonstrate consistent revenue streams, manage your cash flow effectively, and maintain a healthy profit margin, as well as regularly review your financial statements, including balance sheets and income statements, then you can identify areas for improvement, as well as understand what is working well for your business.
If you’re struggling to improve your business credit score or need expert guidance, consider consulting with a reputable credit counselling agency or financial adviser. These professionals specialise in credit management and can provide tailored advice based on your specific circumstances.
This is especially important if you’re in financial hardship. There are some fantastic resources out there to be able to help businesses in financial hardship, to help get your business’s financial control back in your hands.
While we strongly advocate for business counselling and personal financial counselling, one of our stand-out tips is to be wary of credit repair companies. Unlike counsellors, who can help provide strategic guidance and further resources that can lead to credit repair, a credit repair company claims to provide a credit repair service (that comes with often exorbitant fees).
In Australia, no third-party company can legally ‘wash’ or ‘wipe’ legitimate information on your credit file. Unfortunately, if you have a default listing or court judgment on your credit file, these cannot be removed. The only action that a credit repair company can make is removing aged defaults or correcting incorrect information — all of which you can do yourself, at no financial cost to your back pocket (just a bit of your time).
Most credit providers are reluctant to provide further credit to borrowers with a poor credit rating. This is because a traditional credit provider is bound by set credit criteria. Chances are, if you’re amidst the credit repair process, then your hard work won’t yet be reflected on your credit report, and you may have trouble with a credit provider approving any new applications for credit.
This is where working with specialist bad credit lenders, and private lenders can be beneficial for Aussie business owners with a bad credit score. Unlike mainstream lending, private lending doesn’t require a borrower to pass a credit check, and can offer flexibility by working with a borrower’s individual circumstances.
If you know that the way forward for your business is to lend further money to help give you a financial fresh start, then consider approaching a private lender to assist.
You don’t need to let your credit history affect your financial future. Diverse Funding Solutions has access to over 200 of Australia’s top private lenders, who can work with you during the credit repair process, to find a suitable funding solution to help your business strive towards financial freedom.
Have a conversation with one of the experienced team at Diverse Funding Solutions today to learn how we can help you and your business!