The importance of having a credit, savings and banking history

If you are thinking about getting a bank loan for your new business or start up, it’s important to have a good credit and savings history as your bank will take this into consideration when deciding whether to lend you money.

When you apply for a loan, the bank will look carefully at your financial history to make sure you can keep up with the repayments before they agree to lend you the money. This process will include looking at your current income and expenses and assessing how you’ve managed your money in the past. Remember that mobile banking is now available across the Pacific, which means you no longer need to visit a bank branch to conduct transactions like moving money to a savings account or paying loans and bills. This means it is now much easier to build up a savings and banking history, and manage business finances.

In Fiji, PNG and most countries in the Pacific, credit and data bureaus are in place so that banks and other lenders can make informed decisions on a borrower’s capacity to pay back a loan. This also protects the borrower from taking on credit they cannot repay, and getting into financial difficulties. Credit and Data Bureaus store information related to a person’s borrowing history, including loan defaults, bankruptcies and late payments.

So the sooner you start building a good financial history, the more likely you are to be accepted when you apply for a business or personal loan to get your business up and running. Here are some tips to help you.

A note on fees and charges

Always ask about ongoing account keeping fees and any other costs associated with savings accounts, credit cards or loans. These charges can add up, so it is important to make sure you take the lowest, or ‘no fee’, options.

Also check to see what high interest savings accounts are on offer, to help grow your savings faster.

Tips for building a good credit history:

  • Establish your own credit identity – In many families, credit is held in the name of one family member, often the husband or father, but it’s important that if you want to start your own business that you have your own credit identity. Laws are in place to enable women to open bank accounts and access credit without the permission of a male, so there is no reason you cannot have your own account.
  • Make sure that you don’t overdraw your account – Not only will this save you money on fees, it will also create a good account history, demonstrating your ability to manage your existing finances effectively.
  • Pay your bills on time – Your ability to pay your bills on time directly affects your credit rating history. So if you’re the forgetful type, talk to your banker about setting up direct bill payments from your bank account or set a reminder on your phone.
  • Use your existing bank accounts regularly – If you’ve opened an account but haven’t been using it, then lenders won’t have an understanding of your financial situation. Regular deposits lead to a savings history, which shows that you are able to pay back a loan.
  • Get a credit card and pay your credit card bill on time – Credit cards offer the ultimate convenience for buying and keeping track of everything you need to pursue for your business. Paying off bills will help you build a solid credit history and avoid high interest charges.
  • Don’t draw cash advances on your credit card – A personal line of credit is a much more cost-effective way to give yourself access to cash when you need it.
  • Put away savings each week or month – This will not only help you build the funds you need to start your business, but will also demonstrate that you have savings capacity and can manage your current financial commitments.
  • Get professional advice and supportTalk to a Westpac financial advisor for financial solutions to help you achieve your financial goals.