Using Your Credit to Increase Your Working Capital

In business, working capital is defined as current assets minus current liabilities; this calculation demonstrates whether or not a company has enough cash or liquid assets to pay its current bills or obligations (bills that have to be paid in less than one year); and in essence, lead to growth and solid ownership equity. From a personal financial analysis at the individual level the concept is the same.

You might be making enough money already but your credit is hurting you; your credit keeps wiping away your chances of establishing a solid working capital and achieving financial stability.

Here are 7 ways your credit could be hampering your financial comforts:

Auto-financing

If you have an average to below average credit score then most likely the cost of capital on that “new” car you desperately need will be higher than it would be if your score was better. I say “cost of capital” as opposed to “interest rate” because these days the financing companies are getting quite creative. The financing company can grant you a 2% interest rate and still make the same money (cost of capital) or more from you versus someone else who was granted a 5% interest rate. You would think the higher the interest rate the more you pay.
But let’s look at interest rates all else being equal. On a $25,000 car loan for 5 years @ 3% interest rate your monthly payments would be $449.22; the monthly payments assuming a 7% interest rate would be $495.03. At first glance you might say, that is not much of a difference. Well, when you finally get to own your vehicle at the 3% rate you will have paid $1,953.20 in interest for your car; while the 7% owner will have paid $4,701.80 for his.
The point is less money leaving your pockets means more money staying in your pockets; more money staying in your pockets give you more money to pay your short-term obligations/bills thereby improving your working capital thereby increasing your chances of fetching more favorable credit offers for necessary purchases. After a consistent pattern of this happening you will improve your financial stability. Note that financial discipline is also needed for your financial analysis to be a favorable analysis.

Home Mortgage

The same applies if you are seeking a home purchase. A lower credit score will likely yield a high cost of capital on your home mortgage loan. And, the same chain reaction occurs as with the car loan example.

Credit Cards

Using your credit cards in cases of emergencies or even for that much needed vacation once a year can also lead to out-of-control credit card balances. Higher interest credit cards go hand-in-hand with lower end credit scores. And, then the same chain reaction occurs as with the previous two examples.

Loans

Bank loans follow the same footsteps. So make sure you are diligently aware of your credit standings and keep it up as best as possible; I’m not saying punish yourself to the extreme but you should make sacrifices if needed. It is worth it for you, your family, and loved ones.

Auto & Home Insurance

While different insurance companies have varying policies, your credit score can impact your insurance premium. In fact, maintaining good to excellent credit could lead to lower premiums on your auto or home policy, assuming other factors remain unchanged. This, in turn, frees up more money in your pocket to pay bills and improve your working capital, potentially increasing your chances of securing favorable credit offers for future purchases.

Debt Consolidation Opportunities

Strong financial analysis plays a crucial role in identifying debt consolidation opportunities. Just like credit card offers and loans, better credit ratings open doors to more favorable terms and lower interest rates, ultimately reducing your cost of capital. This sets off a chain reaction that can significantly improve your financial situation.

Utilities

You might be shut out from obtaining service from the gas company if your credit is not up to par; that particular gas company might have the best low rates to lock into but you can’t reap that benefit because of your credit. So, you end up shopping elsewhere until captain save a gas customer picks you up but for a higher rate, a high required deposit, and a high monthly customer service fee. Had your credit been in good standings, there’s a whole lot that could have been saved. Again, more money staying in your pockets give you more money to pay your short-term obligations/bills thereby improving your working capital thereby increasing your chances of fetching more favorable credit offers for necessary purchases.

Bonus tip

And as a bonus, a good solid credit may qualify you for an even better paying job; this means even more income for you to strategize for a better financial freedom implementing sound financial analysis you’ve learned.

Conclusion

Make managing your credit a priority by actively building the habit. Practice sound financial analysis as you go. Remember, this isn’t just a one-time effort; it’s a new, beneficial lifestyle that will improve your financial well-being and empower you to help not only yourself but also your loved ones and anyone you choose to support in the future. This is not about fashion; this is Life and it is REAL. Until next time see you at the next level – #FORWARD.

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