Giving customers the option of an extended line of credit to cover their purchases of goods and services is important for several reasons. First of all, it can increase your company’s customer base. Credit allows those people who could not normally afford their purchases to make small payments or pay their bill in full later on. This results in greater overall customer satisfaction and repeat purchases. In turn, your profits are higher.
Also, companies will have a better financial outlook as their accounts receivable grows. This turns into cash to feed your bank balances. However, offering a line of credit doesn’t always guarantee that your customers will pay on time.
Carrot or Stick Approaches to Consumer Credit
In our two-part series, we’ll examine the “carrot and stick approach.” Datalinx wants to help you learn how to use both positive and negative reinforcement in reporting consumer credit.
The first post in our series on how to report consumer credit describes the carrot approach. This method focuses mainly on the positive side of making payments on time and paying in full as soon as possible. Usually, this method is all you need. The majority of all consumers want to act responsibly in regard to paying their debts in a timely manner.
If you’re thinking of starting out with carrot approach, you can help your customers understand the benefits of paying on time. Consumer credit reporting agencies and Datalinx want to help you explain the importance of responsible debt repayment.
Paying on Time Means Better Interest Rates and Approval Odds
According to Privacy Guard, banks and credit card companies with a solid reputation stay highly focused on approving only people who have high credit ratings. While this fact may not seem important at first to someone who only needs a temporary line of credit to cover a purchase, it will most certainly come up later on when they want to buy a house, a car, or get a loan to cover their educational expenses.
Good Credit Affects Employment Options
Many companies check a potential employee’s credit rating when they apply for a job, especially if the work is related to the financial sector. The reasoning behind this is that people who have good credit are seen as responsible, reliable, and trustworthy. They are also more likely to give good financial advice and information about reporting consumer credit to others because of their own personal experiences.
Better Credit Reduces Insurance Prices
Believe it or not, insurance companies check a person’s credit score to decide on a rate. They do it for the same reason as employers. They believe people who have good credit scores are more responsible. This could indicate they will probably have fewer accidents. Paying bills on time demonstrates that they think of long-term consequences. By thinking ahead, they’ll avoid risky behaviors that could lead to accidents or injury.
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