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Become Financially Healthy by Mastering Your Understanding of Credit like a Pro in 5 Minutes!

Credit. The indistinct little word that all financial institutions use. Credit. But what is credit? What does it mean if “your credit score is too low” or “I need to increase my credit score”?

Read more to master your understanding of the term credit and become financially healthy.

What Is Credit?

The term credit can be used in many different ways, such as to describe an income entry into your company’s accounting system, money you have available to spend, a credit refund etc. But what we are focusing on, is borrowed credit. 

In a nutshell, the term credit refers to when you buy something now and only pay for it later. It is usually a contractual agreement between yourself and the financial institution where you lawfully agree to pay the institution back.

Credit can also refer to the creditworthiness or credit history of an individual or company. In this instance, credit is an entry that depicts an increase in liability. If you are granted a loan from a financial institution, your liability increases as you now owe money.

But depending on your individual or company’s credit score, you may be granted a loan with a higher or lower interest rate, or be denied entirely.

Types of Credit

  1. Revolving Loan: This means that the financial institution has granted you a certain amount of money you may spend at your convenience and you need to pay it back later, usually in a lump sum or as monthly repayments. The most common form of buying on credit is via the use of credit cards. Your payments will fluctuate each month depending on how much of the credit you have spent.
  2. Installment Credit/loans: This is when you borrow a set amount of money from the financial institution for a specific purpose, such as for the purchase of a car, stock for your company or to finance renovations. When you use installment credit, you will make equal monthly repayments to the financial institution over a period of time and these types of loans usually include interest.

Credit History

As mentioned above, your credit history will determine how much credit you can receive from the financial institution, at what interest rate you would be paying back and over what period.

A credit history simply reflects how you’ve spent your money over a period of time. This includes a summary of your credit cards, loans, and if you have paid your bills or debit orders on time.

If you have paid all your bills with mostly cash and have never borrowed any money, you won’t have much of a credit history, so the chances of receiving a large credit amount and good interest rate will be lower. However, if you have borrowed money before from a financial institution and have paid it back as agreed, your credit history will be stronger.

Your credit score is based on your credit history. Your credit score is a 3 digit figure that indicates how likely you are to repay your debts. So ultimately, the better your credit history, the better your overall credit score will be.

And that is what you need to understand about credit to make financially healthy decisions and choices. Always remember, build a legacy and don’t leave crippling debt behind.

For more information and tips and tricks to become financially healthy, follow us on social media or contact us directly for a free 15 minute online consultation.

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Cloud-based accounting systems and your business.

 

Let Technology do the work

There are still many outdated systems out there that are soon going to become redundant. In this interesting time, we found ourselves in. Many businesses have been tested in the continuity of their operations with the rise of the COVID-19 pandemic. How much anxiety did it cause you to move your staff off-site? What impact is it having on your business socially and economically? Were you able to continue? Have you considered cloud-based accounting systems as a place to start?

It is time for an update

Updating your systems can have benefits across the board and will have a larger impact than you might expect. These benefits may include cost saving, working with real-time data and systems integrating with one another. I have recently been to a potential client to conduct a systems audit. Everything was fine and dandy until all operations were disrupted. The staff could not access information from home, accounting, client service, and back-office information were all backed up on a server. Yes, information can be accessed by the VPN server, but let’s be honest. Anyone who has worked with these systems knows the shortfalls. It is slow, unstable and could cost a fortune. Your information can be lost in an instant, be it a server crash, theft or fire.

Cloud-based systems

The simple answer is cloud-based accounting systems such as Xero and SageOne. Your data is safe, secure and can be accessed anywhere in the world, as long as you have an internet connection and a computer.

The beauty of these systems is that it never stops evolving and is changing the landscape of business. Take this time at home to do some research on what systems you can use. Just in a week, you have heard about Microsoft Teams, Zoom or Google hangouts. Now is the time to make a proactive decision to protect your business in the coming months ahead. We do not know what the future holds, tomorrow is a mystery. But you can control if you want to stay ahead of the curve.

Please contact us to set up a video conference to chat about possible integrations in your business.