Having a strong credit score is important for countless reasons, but when it comes to your business, there are a select few reasons that are particularly relevant. Having a strong credit score can help lead to financing approvals, better interest rates, better terms, and more flexible programs. Some business owners struggle with keeping their credit score strong because they do not fully understand the things they are doing that are actually hurting their score
Below are a few things that actually might be doing more harm to your credit score than good. Although some of these might seem counterintuitive at first, they could actually be hurting your score.
Canceling A Credit Card
It’s not secret that some people simply cannot keep themselves from overusing and abusing credit cards. Unfortunately, this is a reality that many people live with. These people often think it is smart to cancel a credit card in order to avoid temptation, with the goal of not abusing the credit card and subsequently bringing the credit score up. However, canceling a credit card can actually hurt your credit score. Your credit score is comprised of a lot of different things, but one of those things is the amount of credit open and extended to you at any given time. If you cancel a credit card, you are bringing down the total amount of credit that is currently extended to you. Also, you could hurt your credit utilization ratio, which is something that also plays into your credit score. The credit utilization ratio is a number that credit bureaus use to evaluate how much of the available credit you have is used, and how much is still open to you. By canceling a credit card, you are most likely bringing this number up, which is not a good sign for creditors. A good rule of thumb is to try and keep your credit utilization ratio between 1% and 10%, but anything below 30% is still considered “good”.
Only Having One Type of Credit
Creditors want to see that you have a diversified credit portfolio. This might seem difficult to achieve, but it’s actually quite simple. Having a few different types of credit shows lenders that you are going to pay your debts regardless of what they are for. Some different types of common credit that you can use to diversify your credit portfolio are: credit cards, car loans, mortgages, etc. The more diverse your credit portfolio is, the better idea a lender can have about your credit reliability.
Not Following Your Credit Report
Over 40 million people have found error on their credit report. It’s a sad reality, but there is a lot of credit/identify theft and fraud in the world. This is why it is crucial to read your credit report every now and then to make sure that your credit score is an accurate representation of you, and that it doesn’t include anything that is fraudulent or inaccurate. If someone opened up a credit card in your name without you knowing, maxed out the credit card and never made a payment, your credit score is going to suffer. Unfortunately, this occurs all too often and people don’t notice it for months. This can wreak havoc on your credit score and could have a serious impact when you go to apply for a business loan or get a new mortgage. Keeping a steady eye on your credit report is important so that any business or financial ventures you go into in the future are not hindered by an inaccurate ding on your credit report.