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Credit and Financial Risk Management Go Hand-in-Hand

As the economy continues to recover, it's expected that credit will start flowing at a more normalized pace in the near future. This is good news for small business owners and other Americans for whom credit lines are an important part of their financial management.

The power of credit lies in how you use it. Abusing credit to buy things you don't really need is a recipe for disaster. When you manage credit wisely, however, it can provide a degree of financial security and can help when starting and managing a business.

Credit Card

Offset business risk

Need funds for your business but don't want to empty your bank account? Using credit is one potential option. While a small business loan could offer favorable terms and rates, business owners who don't qualify for one or need more cash than they can get from such a loan may choose to apply for a personal or business line of credit.

This option may allow you, as a small business owner, to leave enough money in your bank accounts to pay suppliers and employees while enabling major purchases, such as equipment, to be spread out over time. Should the business run into trouble, you could still have money in your bank account to stay afloat and continue to pay off the small monthly payments on your credit line until the situation improves.

Credit can help during lean times

For businesses that make most of their money seasonally, such as during the winter holidays, a credit line can help them continue to operate during the slower months when cash flow is reduced. As an example, while most retailers remain open throughout all seasons, they still anxiously await Black Friday (the big sale day after Thanksgiving) to really make a good portion of their profit for the year. Credit allows them to cover expenses the rest of the time.

As another example, a couple just starting out with their careers and families can use credit to help cover some expenses and provide for their children while better job opportunities are explored.

Emergency money

You never know when some extra cash might come in handy. Unexpected trips, an increase in college tuition for the kids, a spouse being laid off — all of these events may be able to be handled with less stress through the prudent use of credit. Financial risk management includes planning for the unexpected, and having credit available can play an important part in this.

Credit is one of the most important pieces of your financial puzzle. Learn how to use it responsibly with free credit education.

Now that you know more about how credit and financial risk management go hand-in-hand, get your Credit Report and Score.
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This information is for educational purposes only and does not constitute legal or financial advice. You should always seek the advice of a legal or financial professional before making legal or financial decisions.

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