Building a credit rating

Good cash flow and a good credit record don’t always go hand in hand. Some business owners may have good cash flow but falter when it comes to paying their accounts, whereas other business owners may not have the best cash flow but are careful about managing their expenses and settling accounts on time. The question is, which of the two would you rather give a loan to?

Large credit providers are members of credit bureaus that share account payment habits of all creditors. So, whether you are applying for a loan, an overdraft, a clothing account or credit facilities, you and your business’s credit record will be scrutinized before a decision is made. An adverse credit record finding against the business or any of the business owners can make it exceptionally difficult to get funding.

Here’s what you need to know about creating a good credit record and how to fix a bad one.

Creating a good credit record

In essence, a good credit record requires regular and on-time payments of all your creditors as well as maintaining your credit facilities within reasonable limits. Conversely, business owners can create a poor credit record by paying accounts beyond their due date or not paying them at all.

There are also many people who have never applied for credit, preferring instead to pay for all their purchases upfront. Your bank can give you a credit thumbs-up (basically confirming that you’ve never gone into unauthorized overdraft), but it is also good practice to open an account (such as a cellphone or clothing account or credit card) to demonstrate your ability and willingness to meet your obligations. This will help create the good credit record you require.

Fixing a bad credit record

It can happen that you only realize you have a bad credit record when you apply for credit. A bad credit event can happen for any number of reasons: an account that wasn’t settled, an account you signed suretyship for that wasn’t settled, a case of identity theft, or an account you haven’t paid because of a billing dispute with the service provider.

Fixing a bad credit record is unfortunately not cheap, easy or quick. You need to find out which credit provider placed the information with the credit bureau and request information from the provider about the outstanding debt and the best way to correct the situation. This can sometimes require the assistance of an attorney and it may take weeks or even months for your credit record to be cleared.

Looking after your credit status

All South African consumers are entitled to a free credit report every year from several credit bureaus, including TransUnion (ITC), Experian, XDS (Credit4Life is the consumer division of XDS) and Compuscan. As well as your

free report, there are other paid options which can provide you with more detailed information about your credit status, such as your credit score. You can also sign up for credit alerts, which can show possible irregular use of your information and help prevent identity theft or fraudulent use of your personal information to access credit.

A final tip. If you do have a billing dispute with a service provider, make sure you clear with them that you credit record will not be adversely affected until the dispute is settled.

For more information, see Building and maintaining a credit rating, page 27-29, The Nedbank Essential Guide for Small Business Owners