3 Essential Things to Know to Maintain a Good Credit Score
- July 21, 2020
- Written by : REIL Capital
To simply put, credit score reflects your history with money. While you canâ€™t calculate your exact credit score, you do control a majority of it. There are several things involved in determining your credit score. But we can count on five factors that credit bureaus use when calculating your credit score. These include payment history, age of credit history, credit utilization, new credit (recent inquiries), and credit mix (number and types of credit accounts you have).
Before you apply for a small business loan, remember that a good credit score can open more loan options with flexible terms. So, how can you improve your credit score? Today, we bring you 3 essential things to know to sustain a good credit score.Â
Donâ€™t Apply for Too Many Loans in a Short Time Period
Everyone knows that the best way to have a strong credit score is through borrowing money as much as you can and paying it back on time (obvious). However, ever thought that applying for too many loans or credit cards can adversely affect your credit score? Every time you apply for a loan or a credit card. The lender makes a hard pull on your credit report. Hard pull vs soft pull credit inquiries are different in many ways but thatâ€™s a topic for another day. For now, you just need to know that most lenders, banks, and creditors use hard pull to see whether youâ€™re loan worthy or not.
A hard credit pull slightly decreases your credit score on a temporary basis. When a lender inquires about your credit score, regardless of whether you are offered a line of credit or not. The inquiry remains on your credit report for 2 years.Â
Thus, every hard pull required for a loan will decrease your score by 5 points, and applying for too many loans will result in a drastic shift in your credit score.Â
Paying Loan Bills Too Late
This takes us back to the core factor for building a credit score- borrowing then paying on time. When you are not committed to paying on time. Of course, you will face the wrath of increased interest rates and late payment fees. But apart from that, your credit score will face the biggest blow.Â
Defaulting on a Loan
Time is the only difference between delinquency and default. When you fail to repay bills for 30 to 90 days, delinquencies will temporarily decrease your credit score. However, as soon as you pay the owed amount along with the late fees, all the delinquencies will be cleared.Â
On the other hand, if, for some reason, it goes over 90 days from the due payment date. Then, that will result in loan default. The time period for defaulting on a loan may vary with different types of loans but usually, it is 90 days.Â
And as you all know, removing a default from your credit report can be quite hard. Apart from losing your asset to compensate for the loan, your credit score also takes a huge hit due to a loan default.
Small business loans, term loans, line of credit, and many other types of loans demand a good credit score. Get in touch with your bank to get a detailed credit report and further improvements.Â
If you have a healthy credit score and you want to apply for a small business loan, get in touch with REIL Cap for instant approvals.Â