Borrowing is very important for the economy because it ensures better transactions between businesses and consumers. Credit allows companies to arrange finance for businesses so that they can run the market in the way they want.
Inability to borrow money can stifle business growth. Owners will not be able to buy machines and raw materials to run the show and may not even pay employees. Thus it will harm the prospects of making a profit, which is the ultimate business goal. Some businesses may approach credit unions for loans instead of banks.
Businesses rely heavily on borrowing for financing all through its life and not only during start-up when the requirement of funds is the most. Business owners must regularly infuse funds to keep the show running, and the only way to arrange for funds is to obtain loans. While individuals might often avail credit just for its sake, for businesses, it becomes a necessity.
Credit is attractive because it does away with making hefty payments at a time but instead; pay over time without stressing the finances. Credit plays a vital role in wealth building. It helps to grab business opportunities that lead to business growth besides ensuring smooth operations that promise a bright future.
Build your financial credentials with credit
Both for personal loan and business loan lenders use the same yardstick for judging the creditworthiness of borrowers. Business owners who avail business loans must have a good credit score backed by good payment history of the business transactions to qualify for credit. Their personal financial credentials become important even when borrowing for business. Only when both parameters match well that the chances of getting a loan to improve considerably. Lenders report the transaction to the credit rating agencies like Experian, Equifax, and TransUnion that prepare the credit history, which includes your payment patterns and whether you make payments on time. The compilation of the history helps to generate the credit report which, when evaluated, gives the credit score. Lenders use the credit report and credit score to assess your risk level of consumers. But nothing can happen if you are unable to get credit in the first place.
Sources for credit
Credit cards are the most convenient sources of credits. It provides consumers with a revolving credit facility so that they can maximize their spending while making low utilization of the credit limit. For high-value purchases, taking loans is the only way to arrange for finance. Banks, credit unions, and other financial institutions offer loans to consumers by considering their eligibility based on their credit score. Excellent and good credit score help consumers to qualify for loans easily because they are more reliable borrowers who also enjoy lower interest rates. Low or poor credit scores can make it difficult to access credit due to the risks perceived by lenders. If at all, they agree to provide a loan, they will charge higher interest to cover the risks as much as possible.
Credit Unions or Banks?
When seeking credit or loan, consumers get caught in a dilemma about whether to approach banks or credit unions. Convenience and interest rates are the most critical factors when accessing credit. So, credit unions are a better choice primarily if it provides online service and is a member of co-operatives that give access to ATMs and branches across the nation. Credit unions are as safe as banks, but the former outscores banks because it belonged to the category of not-for-profit organizations and owned by the members only. Since credit unions do not aim for profit, they can offer lower interest rates on loans than banks as well as keep their fees low. Moreover, credit unions provide better customer service than banks.
Navy Federal Credit Union
Navy Federal Credit Union that serves those in the defense and military space and their families has 8 million members and is the largest credit union of the US. The Credit Union, founded in 1933, operates as a full-service bank today with a mission to serve those who serve the country. The Credit Union invites members from the military fraternity and anyone who has served in any branch of the US Armed Forces to become a member. Whether they served as a reservist or on active duty – anyone who worked for the Department of Defense (DOD) or its contractor and anyone from their immediate family can become a member.
Navy Federal Credit Union offers high rates for share certificates and does not have any monthly fees on basic checking accounts as well as many other checking accounts. It is suitable for those who seek a single place for all their banking needs. To know more about it, go through the Navy Federal Credit Union PFA editor review.
Lower interest than banks
Even a marginal difference in interest rates can make a massive difference in the total payout when availing large loans that businesses often have to take. In this respect, credit, unions are very attractive lenders. Credit unions offer very low interest on savings accounts. The Navy Federal Credit Union provides only 0.025% APY, and you could find better rates elsewhere. But when it comes to loans, their interest rates are lower than banks and other financial institutions. No matter how much attractive the loans from credit unions might be, you must never misuse it. Abusing credit is the biggest danger for consumers as it can cause severe damage to your financial prospects.
Avoid the risks of credit
Managing credit properly should be your goal to reap its benefits because an inability to do so can impact many major financial applications that you use. Credit is a tool, and you must use it wisely. Your credit score tells all about your financial standing and reliability that others consider when deciding whether to have business with you or not. Poor credit score will not only bar you from availing loans. And even if you manage to get one, the interest rate will be too high.
Inability to handle credit responsibly will result in consumers paying too much interest as well as high fees and penalties. Ideally, you must borrow only when you have a real need with the assurance of making timely payments but never make it a habit.
Marina Thomas is a marketing and communication expert. She also serves as a content developer with many years of experience. Marina helps clients in long-term wealth plans. Previously she covered an extensive range of topics in her posts, including Money Saving, Budgeting, Cryptocurrency, Business debt consolidation, Business, and Start-ups.