Mistakes That Hurt Your Personal Credit

Your credit score plays a huge factor in opening or closing financial doors through your lifetime. As a business owner, your business credit options are determined mostly by your personal credit. Fortunately, you can avoid several mistakes that can damage your personal credit or limit your chances of getting low rates for funding options in the future.

You Depend Too Much on One Factor

There are several factors that go into calculating your FICO credit score which include how punctual you are with payments, what you owe, the length of your credit history, how frequently you apply for new credit, the types of credit you are using.

Making payments on time gets overlooked sometimes but it is one of the important factors that make up your credit score. It is important to remember that everything mattes so think about how you can improve in each category.

You Carry High Balances

Keeping your utilized credit low is important, even if you make timely payments on time and even if you regularly pay off balance in full. If you have a large number of cards carrying a balance, or you are close to maxing out cards, this may hurt your score.

Also, you need to keep in mind the mix of type of credit lines that you have open and carry balances on as does whether you still owe a large amount of a loan’s initial investment.

You Close Long-Term Credit Lines or Open New Ones Frequently

Closing a credit line can harm your score if you have a low balance on that line. Once a credit line is closed it no longer adds to your history. Closing a credit line you have had open for years will erase your credit history. Even if you have paid off your debt on that line or do not use it often, keep it open so that you have that history.

If you frequently open credit, it is another red flag for FICO. They view this type of behavior as risky. Be careful what you have as your balances too as it matters whether you still owe a large amount of the loans initial installment.

You Co-Sign Loans for Friends

It can jeopardize your credit if you co-sign for loved one for friend. If the person is defaulting on payments or making them late all the time, your credit score gets damaged. Once your credit is linked with someone else, it is hard to detangle from it. Be careful who you choose to help co-sign if they are in need.

You Do Not Monitor Your Credit

It is important that you monitor your credit regularly by checking Equifax, Experian, and TransUnion. This can help you spot errors or identity theft right before it causes damage to your score. Credit bureaus are obligated to investigate any error or questionable transaction you find, typically within 30 days. It is important that you consistently check your score from all three bureaus, as their reports may contain slightly different information and inaccuracies.

You Use Your Personal Credit to Fund Your Business

Using your personal credit for business expenses is tempting, especially if your personal credit is high and have a long credit history. This increases your risk of overloading your personal credit and design your own credit and your business’s finances. Finally, using personal credit for business costs limits available credit to the range for individuals—a small percentage of what a lender might offer a business.