Insights

7 Tips To Save Your Credit Score

Life gets busy, and it’s often hard to keep track of all the things that need doing, like monitoring finances and paying the bills. This becomes especially true in a pandemic. In light of the recent times, banks and lenders have been inundated with requests for payment deferrals on mortgages, credit cards, and car loans.If you have taken temporary measures to reduce your monthly expenses with a deferral, it should not impact your credit score. However, there is a chance that lenders could incorrectly report it as a missed or late payment, which can account for up to 35% of your credit score. Monitoring your report is critical to ensuring errors are caught early to avoid negative impacts on your credit score.

Even when times are tough, there are measures you can take to build positive credit habits and things you can do to ensure your credit score doesn’t take a nosedive.

Why would my credit score drop?

Credit scores fluctuate so it’s important to monitor it. If yours drops from time to time, just take a deep breath and have a look at a few reasons why it might have happened:

You applied for a credit card or loan recently;
You made a large purchase;
You missed a payment or made a late payment;
Your credit limit was lowered;
You closed a credit card account;
Someone for whom you’ve cosigned a loan missed a payment;
There was an error on your credit report.

Not sure where you stand? You can check your credit report for free anytime, with the Toronto based company, Borrowell. The whole process is quick and online and doesn’t have any impact on your score.

Here are some tips that might help you to save your credit score and build credit quickly:

When you apply for a credit card or a loan, the lender will tap into your credit history via a major credit bureau like Equifax or Transunion. These are called “hard inquiries.” Unfortunately, when they do that, your credit score drops a few points. There is nothing you can really do about it if you want to apply for credit. Just don’t apply for too many loans or cards in the space of a short time.

Buying something expensive can affect your credit utilization ratio which is the amount of credit you’ve utilized divided by the total amount of credit you have to use. It’s recommended to keep that below 30%. Your credit utilization is lowered when you pay off your credit card balances every month. If your credit card copy offers to increase your limit, it might be a good idea to accept as it increases your credit limit (thereby lowering your utilization).

Any payment that is 30 or more days late is going to affect your credit score. If you’re late between 60-90 days, that’s going to be even tougher on your score. If your debt goes into collections, it will stay on your report for seven years which is disastrous to your credit score. Firstly, make a payment on the one you missed as soon as possible. After you’ve brought your account up to speed, your credit score will start to increase. If you’re having a problem meeting monthly payments, you could potentially apply for a deferral program, just make sure you’re aware of the costs.

If your credit limit was reduced while there was still a balance on your card, it might also impact your credit utilization ratio. The best way to combat this is to pay off the balance of the card, or much of it as you can, to get your utilization down. If you don’t know why your limit was lowered, call the issuer of the card to get the details.

Your credit utilization ratio can also be affected when you close a credit card account. Also, if you close an account on a card that you’ve been using for years, it affects your credit history which, in turn, will affect your credit score. Try to keep accounts on old cards open. If you really must close an account, close the one that’s the newest.

If the person for whom you cosigned a loan or credit card misses a payment, it may affect your credit score as well. You might have to take matters into your own hands and schedule reminders for this person to make his or her payments on time. Talk to them and let them know your score is affected when they don’t make payments on time.

It’s not very common to have mistakes on a credit report, but if you do find one or query something on your report, you can challenge the information from the credit bureau that provided it. Dispute letters can be submitted online or via snail mail.

The good news is, if you have a low credit score, even small changes over time can lead to positive impacts. Some analysts say you could even increase it by as much as 100 points in a relatively short time span. With continued work and commitment to positive financial habits, you will have a better chance of getting the best terms on credit products like credit cards, mortgages, or loans.

Driving your Costs Down

If you have one of the more than 25 million road motor vehicles registered in Canada, then you should make sure your car is driving your costs down. Deducting automobile costs is a very important part of tax planning for many small businesses, one that comes with many rules and restrictions.Generally, any expense incurred to operate a vehicle can be deducted, including: fuel, insurance, maintenance and repairs, interest, lease costs, and more. However, it is important to keep track of all business kilometers driven at the beginning, end, and throughout the year, along with all automotive receipts. To help me keep track, I keep a logbook in my car that I fill out after each trip.

There are significant tax savings to be had throughout the vehicle buying and ownership process. Here are a few tips:

Purchasing a Vehicle

There are special rules in place to prevent business owners from purchasing high-cost luxury vehicles and writing them off for business purposes. These rules only allow you to write-off up to $30,000 of the cost of a passenger vehicle, along with many other restrictions. However, if you are purchasing a vehicle that is not for passengers, such as a pick-up truck, then there is no limit.

Lease or Finance?

Similar to when you purchase a vehicle outright, there are limits on the amount that you can write-off when you lease or finance the purchase of a vehicle. If your lease costs exceed $800 per month plus HST then there are restrictions imposed to limit your tax write-off. One way to avoid this is to keep your month lease cost as low as possible by excluding insurance, repairs, maintenance, and licenses from your payments. If you are financing your vehicle, then the maximum amount of interest that you can write-off is $300 per month. One way to ensure that you come in within this limit is to bring down your interest payments by making a large enough down-payment upfront.

Vehicle Ownership: Personal or Business?

This decision ultimately comes down to how much the vehicle is going to be driven for business purposes. If the vehicle is driven 90% for business purposes then it makes the most sense to have it owned by the business. However, if this percentage is less you might want to consider registering it to you personally. The reason for this is that there are strict rules imposed on those who use vehicles owned by their business for personal purposes. This can add a lot of complexity and come at a significant cost to you. Instead, you can charge your company a reasonable car allowance for the business use of a vehicle registered to you personally. This will save you tax and a lot of hassle.

8 Tips for Better Cash Flow Management During Covid-19

Cash flow management should be an integral part of your business’s risk assessment and action planning. If your business is facing liquidity issues, it should trigger an alarm so you can conduct a risk assessment and take the necessary steps to manage your cash flows. During the COVID period, almost all brick and mortar businesses have been suffering from liquidity and working capital issues. Businesses are falling down due to negative growth and a slowing economy. Many businesses are shifting from a non-digital business environment to the digital world. Those who better manage cash flows of their businesses are surviving this unprecedented time. Controlling the business cash flows will help you prepare for the long term.

The Government of Canada has launched many programs for small businesses that have provided financial assistance in the form of interest-free loans, subsidy programs, and other non-refundable financial assistance programs. There are certain ways through which small business owners can analyze their business’s spending patterns, reduce operational expenses to a bare minimum level, and improve the cash flows of their businesses.

1 Reduction in the Overall Business Costs

If you are a small business owner, reducing your business expenses was probably one of the first things you might have done it at the start of COVID. If the process of reviewing your business expenses is something that you cannot do on your own, you can approach a Chartered Accountant firm. They can review your business activities, identify weak areas of your business, and can also be your authorized representative with CRA at the time of tax filings.

2 Revisit your Variable Costs

When reducing the overall business cost, it is recommended that you reduce variable costs first, as it is a quicker way to immediately reduce your cash outflows. For example, you need to look for opportunities to reduce contract labor and re-distribute work to your permanent workforce so that your variable costs can be controlled.

3 Revisit Capital Investment Plans

When you face a liquidity crisis, you should assess which investments you should hold and which investments you should postpone until the COVID situation improves. You should consider the cash flow factor before making any decisions about your investment plans.

4 Focus on Inventory Management

You don’t need to block extra costs in holding high stock levels. If the prices of supplies go down, it is beneficial that you increase your stock level, provided your warehousing cost and liquidity situation may not deteriorate.

5 Offering Discounts to the Existing Customers

When everyone is in a dire financial situation, you need to rely on the existing customers by offering them discounts and other promotional offers instead of selling your product to new customers on credit. This will reduce the risk of having poor cash flows.

6 Cash Flow Projection

It is highly recommended to prepare a cash flow projection for the coming year. You can prepare a spreadsheet or use accounting software to plug in expected monthly cash inflows and outflows based on the historic data. You can use the projected cash flow statement, anticipate when your sales will probably have a downward slope, check your actual cash position regularly and compare the projections with actual data and take prompt actions if there is any divergence.

7 Speed Up Cash Inflows

Getting money into your business faster can save you costs on your line of credit. You need to send invoices faster, have customers pay electronically, and charge slow payers’ interest. At the same time, you can also ask your vendors to give you more credit period so that you can manage your cash flows.

8 Check on Your Business’s Profitability

Finally, you need to check the profitability of your business. You need to make sure that your business is earning a reasonable amount of profit. For a small business, you must keep a close eye on items that have low potential to generate high profits. You can take such items out and rely on products capable of generating high profits.

In Conclusion

We know times are certainly tough for some, and even brutal for others right now. Managing your cash flow during these times is essential to keep your business moving forward. Hiring a Toronto Accountant to help might seem expensive, but I would encourage you to do so as contacting an Accountant can actually save you more money as they can assist in helping you create a cash management projection while assisting in where you can save more money, will offset the costs of an Accountant.

Hello world!

Welcome to WordPress. This is your first post. Edit or delete it, then start writing!