Credit Quality (Consumer and Business)

How to effectively manage your credit quality (and the importance)

New Accounts

New accounts, most notably automobile financing, are a large factor in your overall credit score. Every new account drops your credit score from anywhere from 15-20 points when established. Over time, around 6-12 months, the new account will re-adjust and eventually your credit score will go up if all payments are made on time

“Shopping Around”

When opening a new account, customers (especially businesses), tend to go to multiple lenders (banks) to achieve the rate or payment that they feel comfortable with. Every time you apply for any type of debt, from a credit card to a large loan, your credit report is reviewed by the bank. Every time a bank reviews your credit report this can drop your credit score by anywhere from 5-15 points for each review. For example, if you are looking for $50,000 for a new equipment purchase and decide to go to 4 different banks to achieve the rate or payment of your desire – you can drastically lower your credit score with four applications that render a review of your credit report

Credit Cards

Credit cards and revolving debt is dangerous – usually attached with incentives to spend and high rates that can trap a customer or business in a vicious circle of debt. This is also a red flag to lenders due to how quickly the amount of debt can add up due to the vicious rates.

Installment Accounts

An installment account is considered any type of debt account that is not a credit card or a mortgage. This involves ordinary business/consumer loans, automobile loans etc. A high amount of installment debt will weigh on your credit report as these loans are usually on longer terms and debt is paid off dependent on the term. The higher your installment debt the lower your credit score. The quicker a consumer or business acquires installment debt is not only a red flag for lenders but also will drop a credit driven score drastically.

Missing Payments

The worst thing an individual or a business can do is miss a payment on a debt obligation – the more recent the more of a red flag to Creditors. The most important type of debt obligation to not miss is a mortgage payment; although this doesn’t affect your credit score more than any other missed payment. It is seen as the worse type of derogatory as real estate is usually the most important asset for an individual and business to function.

Building Credit for your Business/Personal

If someone or a business has not financed before, even with good credit, there will be some sort of limit that a lender will enforce. To build business or personal credit the best way is to smart small and work up the ladder. If you foresee a need for debt in the near future – try and stay ahead of the game and borrow smaller amounts of debt 18-24 months in advance to increase your creditworthiness with lenders as well as increase your credit score.

Maintaining your credit score (Paynet)

Works the same as personal credit section mentioned above.

Federal Reserve Interest Rates and Forward Outlook

Interest Rates are Rising

As inflation increases and US Economic Growth is at an all time high the government is taking advantage of raising interest rates. This affects all levels of debt, consumer wise and business wise

As rates are increased all rates will do so. Much like a waterfall effect. SECURE FINANCING NOW before the next Federal Reserve rate hike. It is forecasted 2 more rate hikes are to come before the end of fiscal year 2019. (Lock in your rate now etc etc etc.)

Reasons to finance in the current and future economy:

1. Slower economy – cash management, cash flow purposes, surviving a down turn in revenue due to Section 179 as well as increasing controls on cash management to stay afloat. The US is expecting a recession around 2020-2021. If your business fluctuates with the well being of the economy, financing now can effectively help with cash management, tax advantages and mobility through a slowing economy
2. Economic Growth – the US economy has grown at not only the quickest but most substantial rate in history. With companies reporting revenue and income at an all time high. It is important to get ahead of the slowdown and start looking into financing to overcome when the economy slows down. If you are sitting on cash during this booming economy put it to work smart and not all at once!

Connor R. McKeeve – Credit Analyst

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