In both our personal finances and in business, serious decisions with long-term consequences must be made, sometimes on short notice or with little opportunity to prepare. At such times, having good credit can be especially important.
Credit transactions are so much a part of our daily routine that they are often taken for granted -- and therein lies a huge potential problem. A history of missed or late payments can have a negative, even devastating impact on your ability to secure credit.
Since no one knows when the need for a loan may arise, it's a good idea to secure a line of credit before you face an emergency situation and while your good credit is unblemished.
Ninety percent of business expenses and as much as half of today's consumer purchases involve credit. Most people finance the purchases of their homes and cars, and almost everyone has at least one credit card.
While once considered a matter of convenience, a credit card today is a necessity when it comes to reserving hotel rooms and rental cars or even creating an Internet service account. And while the United States might still have a way to go before becoming a cashless society, a growing number of people prefer to not even carry cash, choosing instead to transact their business using either credit cards or credit accounts accessed by PIN numbers and passwords.
But the failure to pay bills promptly and regularly can leave blots on credit records that can become problematic.
Credit reporting agencies collect and record information from banks, credit unions, finance companies, retailers and other sources, and maintain detailed histories indicating the credit-worthiness of individuals and businesses. These credit histories play a large part in determining a person's or company's ability to secure new or additional credit.
Owners of a business in need of additional working capital or homeowners seeking to refinance who have maintained a good credit history can secure a home improvement or equity loan or establish a line of credit. A good credit rating can mean the difference between swift approval and letters of regret.
With so much at stake, it is worth taking time to check credit reports and make certain records are correct and up-to-date.
According to Fair Isaac Corp., a prominent industry consulting organization, there are five factors that a affect a credit rating:
* Payment history is usually the most significant factor. Pay bills on time.
* Total amount of debt relative to available credit is considered.
* An established credit history generally counts in your favor.
* Several new accounts opened in a short period of time is usually not a good idea.
* The number and types of active accounts, such as retail loans, mortgage loan, auto loan or line of credit are considered better than simply having many credit cards.
Personal credit is a privilege, not a right. Business loans are sometimes necessary to help a business grow. Paying bills on time, decreasing outstanding balances and limiting the amount of new debt taken on will help maintain a good credit rating, and maintaining good credit is simply a very good idea.
Faye T. Pantazelos is president and CEO of New Century Bank and its parent company, NCB Holdings Inc. She founded NCB Holdings, which provides corporate banking services, in 1997. Reach her at (312) 944-5400 or www.newcenturybk.com.