You don’t need to be told how important your credit score is.
After all, it impacts your ability to obtain a loan and whether those are car, home or commercial loans, this can really slow your momentum.
So, if you’re looking to make sure your credit score is the best that it can be, check out our top 4 mistakes to avoid below and keep in control of your credit score.
1. Late Payments
Late bill payments or failure to pay them at all will have a significant impact on your credit score. Although you might not notice it, making a late payment could drop your credit score by up to 110 points.
The impact of late payments is much lower on individuals with lower credit scores. This, however, doesn’t mean you would see a decline in your credit score should you miss a payment.
One way to avoid this is by ensuring you make payments promptly before it is too late. You could also set up automatic payments if you tend to forget about bills.
As a small business owner you need to know the importance of maintaining a good credit score. Managing your cash flow is very important to your success, but with so much on your mind, it can be easy to forget payments here and there. So, when you find an option of setting up automated payments to our suppliers, this can solve that problem easily and help you maintain a good credit score.
2. Not Using Credit
You can only have a credit history if you applied for a credit card or have loans listed in your name. Lenders use your credit score to determine if you are eligible for a loan or credit card or not.
Anyone without a credit history is more likely to be denied a loan request, or be charged high-interest rates for the same. Higher interest rates make it harder for you to repay on time, which will again affect your credit rating.
Some people may have credit but use it sparingly or fail to use it at all. While you shouldn’t take a loan when you don’t really need it, it is advisable to use your credit card regularly to build a strong credit history.
You could use the cards when making a significant purchase such as a home or a car. You shouldn’t, however, take a bunch of loans that could affect your ability to repay.
3. Applying for Lots of Credit Cards
Some people will have more than five credit cards on them. Although their income level might allow it, applying for new credit cards after every few months will only affect your credit rating.
This is because the credit company will be forced to hard pull your credit report when processing the application. This, however, depends on how frequent the applications are.
Be mindful when planning to apply for a new card. Individuals with a credit score of less than 500 should avoid applying for new cards – there’s a probability the application won’t go through.
Only make such applications when confident the issuer will accept the applications, and if your credit score is good enough.
4. Closing Your Credit Accounts
Be careful when closing down some of your credit accounts.
Closing credit accounts will affect your credit rating in two ways. The credit amount you once had available is more likely to take a dip when you close one or more accounts.
In addition to this, closing credit accounts shortens the average age of your credit accounts. It goes without saying that, you will lose about 15% of your credit score and the time you have been using as soon as you close a major account.
That said, it would be advisable to consider all the possibilities and impact on your score when thinking of closing an account.
Although closing your credit account might affect your rating in one way or another, you still need to factor in the credit utilisation level and average account age.
That said, it would make more sense closing down a newer account as compared to an aged one. Older accounts hold more data and will have a more significant impact if you close them down.
Closing accounts can have an impact on your credit score. Seek help from a financial advisor if you can’t seem to make a decision on which accounts to close.
Now that you have the tools to get your credit score back on track, you’ll be on your way to getting approved for that commercial loan, car loan or property loan you’ve been waiting for.
Which leaves just one question – how will you start moving towards that goal today?
Experts from Max Funding emphasise “it is important for business owners to establish or repair business credit if you want to get finance in the future for growth opportunities. Make payments on time. Keep track of your credit records. Talk to your lender if you have trouble to meet repayments. Keep personal and business finance separately.”