|Posted on October 29, 2018 at 9:50 PM|
6 SECRETS ABOUT YOUR CREDIT MAYBE HURTING YOUR CREDIT SCORE - Some factors affecting your score might be obvious, others are sneaky and easy to overlook. Make sure you consider all of the factors that affect your small business credit score.
Whether you’re in the market for a new credit card or a business loan, you probably already know that potential lenders will scrutinize your business’s history and financials. But did you know that your personal credit score can affect lenders’ decisions about whether to extend you those loans and lines of credit?
If that seems unfair, consider this: Until you’ve established a solid line of business credithttps://www.crilegal.com/credit-guide" target="_blank">, the only history available for potential lenders to assess is your personal credit score. And while some of the factors affecting your score might be obvious (failing to pay bills; maxing out credit cards), others are sneaky and easy to overlook.
But before we dig into the surprising pitfalls that could lower your score, let’s get the basics out of the way.
What’s my credit score, again?
Think of your credit score like a debt management report card. A high score tells potential lenders that you’re responsible and trustworthy—someone who can be relied on to pay back their debts. A score of 700-749 is considered good; anything above 750 is excellent.
When you were a kid, your parents might have rewarded you with money for stellar grades. That’s kind of how your credit score works, too—except that money comes in the form of you getting approved for more types of loans, with the best possible rates. Lenders determine if you’re credit worthy by checking your FICO score—a decades-old system that’s now used by all sorts of lenders to estimate your creditworthiness.
The Sneaky Reasons Your Credit Score Might Be Tanking
Maintaining solid credit is one-part diligent maintenance and two parts careful balancing act. Sure, you’ll want to pay your bills on time, in full, every month. You’ll also want to use your credit cards—but not too much. You’ll want to maintain a healthy mix of credit accounts, like a mortgage, car loans, and credit cards—but don’t go overboard, opening a slew of accounts.
Monitoring your credit-related activities so closely might feel like overkill but trust us—soon it’ll be second nature. Remember to follow the two ground rules: Pay your bills on time and pay off your debt. And be on guard against these 6 surprising reasons your credit score can take a hit.
1. Library and Other Rental Fees
Been holding on to that battered copy of “Who Moved My Cheese?” for so long, you think it’s not worth returning? Think again. The 2008 recession inspired libraries and media rental companies (like Netflix and Redbox) to keep track of delinquent accounts. They report these accounts to collection agencies, who in turn rat on you to the credit bureaus. So, round up those overdue books and movies and prepare to settle up.
2. Your Gym Membership
Gym contracts’ stringent canceling policies seem downright cruel, with many requiring you to send a letter or cancel in person. But if you’re not using the membership, cancel it. Don’t let monthly unpaid fees pile up, and don’t even think about simply closing the account from which you paid those fees. Defaulting on your dues could trigger the collectors to come after you—but closing your account will lower your score even more.
3. Opening New Accounts
Whenever someone requests your credit information, it shows. Called “credit inquiries,” these requests come in two varieties: “soft” and “hard.” Soft credit inquirieshttps://www.crilegal.com/credit-guide" target="_blank"> occur when a non-lender, such as a future employer, requests your credit score. Most of the time, this doesn’t affect your score.
A hard inquiry happens after you’ve applied for some type of credit, triggering the lender to request your score. These types of inquiries can lower your score. That’s because your request is a red flag, signaling to credit bureaus that you need money and could possibly default on your debt.
4. Changes to Current Accounts
Like opening a new account, requesting a change to a current account—like increasing your credit limit, or lowering your annual interest rate—is considered a hard inquiry. Your credit card company will need to check your credit, resulting in a lowering of your score.
5. Parking and Speeding Tickets
It’s amazing how these seemingly minor violations can dog us for years. If you fail to pay a ticket and it ends up in collections, you’re delinquent. Your debt will be reported to the credit bureaus, where it can cause your score to drop dramatically—sometimes by as much as 50 to 100 points.
6. Failing to Use Your Credit Card
Credit bureaus like to see that you have access to a lot of credit but don’t use it all. Experts suggest targeting a credit utilization ratio below 30% (i.e., you’re using only that percentage of your available credit).
Rather than trying to hit that ratio, it might seem easier to simply not use your card at all. But paradoxically, an unused card is terrible for your credit score. If your account shows six months of inactivity, your bank may stop reporting your card information to the credit bureaus. Or they might close your account, full stop. Either situation will tank your score.
But don’t be discouraged: A healthy credit score is achievable with a little time and effort. Monitor your credit (and snag your free annual report from AnnualCreditReport.com) and pay your bills in full. Than get that small business loan—and use it to expand your hiring, purchase new equipment, or move into a larger space. Because the ultimate reward of a healthy credit score is the opportunity to dream bigger.