3 Common Mistakes That Lead to a Low Credit Score And Prevent You From Getting Business Funding
If you're thinking about getting a loan, you should know that your credit history and score will be a major factor in deciding whether or not you qualify.
Furthermore, a high credit score might enable you to obtain credit with more favorable conditions, such as reduced lending rates, in comparison to individuals with a lower credit score. Your credit score affects more than simply your eligibility.
Therefore, ignoring your score might end up costing you a lot of money in the long run, especially if you need it to fund your business.
What Is A Credit Score?
A credit score is a three-digit figure that typically ranges from 300 to 850 and indicates how probable you are to pay back loans and make payments on time.
Your credit reports are created using the information obtained by credit-reporting organizations, often known as credit bureaus. The top three credit bureaus in the United States, also known as the big three, are TransUnion, Experian, and Equifax.
Although each creditor has its criteria for acceptable ratings, the following fundamental principles apply: In general, a credit score of 720 or greater is regarded as outstanding.
The range of 690 to 719 is regarded as good credit. Fair credit is defined as scores between 631 and 689, while bad credit is defined as 629 and lower.
With that said, what are some mistakes you should avoid to get a good credit score to fund your business or any other endeavor?
Having Too Many Unpaid Loans As Well As Credit Card Debt
Your credit rating might suffer if you tend to take on excessive amounts of credit, particularly loans without collateral. A significant quantity of overdue debt suggests a weak capacity to make payments and a strong chance of failure.
Your credit rating and prospects of getting authorized for future credit will often suffer if your monthly average credit repayments exceed 50 percent of your take-home pay or net monthly salary.
So to keep your credit score high and improve your creditworthiness, only borrow as the last option. Don’t rack up excessive credit card debt or many unsecured or unprotected loans at once. This way, financial institutions will be able to help you fund your new enterprise.
Additionally, don’t apply for credit cards unnecessarily. Now you may be wondering – why does credit card application affect credit score in the first place?
Well, it’s because when you apply for a credit card, a hard inquiry is generated on your credit report, and it negatively affects it, especially when the credit card company rejects you and you reapply.
So, never reapply for a credit card without knowing why you were rejected the first time, or never apply for a new one without repaying all your credit card debt first.
Not Routinely Reviewing Your Credit Score
Regularly checking your credit rating and credit history for inaccuracies is a smart habit. This is because your report might contain straightforward reporting or clerical mistakes that might negatively affect your credit rating.
Only if you regularly review your credit history and rating can you have such inaccuracies fixed. Remember that if you examine your personal credit history and report, it is a “soft enquiry” and won’t have an impact on your score.
However, a mistake that sneaks into your credit report undetected might significantly affect your rating and score. In essence, not checking to see if there are errors in your credit report might affect your chances of getting the necessary funding needed for your enterprise.
Maxing Out Your Credit Card Or Cards
A further factor that might lower your credit rating or score is being close to your debt’s set capacity. For instance, your credit rating may suffer greatly if you maintain an active credit card and use the whole amount.
When credit bureaus notice that you are close to your spending threshold, they hesitate to extend you further credit. It might appear as though your finances are deteriorating as you go close to your threshold, and the agencies are just interested in lowering their liability.
Consequently, having this issue, as a result, will reduce the chances of any financial institution taking a chance of lending you for your business.