The ability of an individual to pay debt and implement successful projects determines his financial strength. Financial strength is measured using the credit report which is used to stipulate the credit worthiness of an individual. To be successful in implementing and maintenance of a viable investment, cash is required. On the other hand, when debt is decreased, credit worthiness subsequently increases making it possible for a firm or an individual to seek extra finance to take on huge projects.
Moreover, when the debt is decreased, an individual can peacefully concentrate on taking other investments or personal assets such as mortgage or vehicles that would not have been possible with the existence of the debt. Therefore, after receiving $5,000, it is advisable to lower the debt since it translates to a positive credit score in the long run.
The terms of credit and available credit are influenced by a firm’s credit score. Lenders use the credit score to determine the financial health of a firm by ordering a credit report. The report indicates the amount of risk that the bank would be taking if it sources finance to the firm. According to FICO (2015), a credit score is a summary of a firm’s or an individual’s credit risk for a specific period and it is used by lenders to assess the credit report.
The $5,000 received by the firm should be used to lower the debt for a positive credit score. Though credit rating would not increase immediately, consistent payment of the debts would lead to a rise of the score. Investing is risky especially when returns are not guaranteed plus the cash was received unexpectedly, so there hadn’t been any plans to facilitate successful investment.
FICO (2015). Credit basics. Retrieved from http://www.myfico.com/crediteducation/improveyourscore.aspx
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