Most factors that influence your credit score are obvious: a slow payment history, for example, or a bankruptcy can lower your score and render your loan more costly than it needs to be. But some factors are less well known. Find out what hidden factors can cause your credit score to be lower.
The formula for credit scoring is somewhat mysterious and always evolving—similar to the algorithms that determine what ads you see on social media. Still, you can give yourself a better shot at funding approval if you keep these behaviors in mind before applying for financing:
1. Minimize inquiries. Anytime a lender or vendor pulls your credit report, it affects your credit. You can’t avoid this, but you can keep inquiries, and their resulting dings, to a minimum. If you’re comparison shopping, don’t let vendors pull your report unless you’re seriously considering buying. That applies to mobile phone carriers, equipment leasing companies, auto dealers, rental agencies and any other supplier of big-ticket items.
2. Don’t pay cash for a rental car. Use plastic even if you don’t need to. If you doggedly insist on paying cash, the car rental company pulls an extra-detailed credit report as a hedge against the chance you’ll steal or damage the vehicle. That is a ding by itself.
3. Keep a few credit card accounts open: Even if you never intend to use them, always maintain one or two card accounts. Having no plastic may sound like an admirable goal, but it hurts your credit. Having too many accounts open also hurts your credit. The Goldilocks ideal: Keep low or $0 balances on just a few accounts. That tells lenders you know how to manage credit.
4. Close excess card accounts only after zeroing out the balance. Never close a card account while you still carry a balance on it. Pay it off first, then take the initiative to close it. Accounts closed by the cardholder are viewed more favorably from those closed by the issuer.
5. Avoid even a whiff of collection activity. Library fines, parking tickets and other “nuisance” charges, if unpaid, can actually wind up in the hands of a collection agency. That’s a red flag on your credit report—no matter how small the balance—and an unforced error you can easily avoid.
6. Avoid co-signing loans. The way lenders look at it, a borrower’s behavior reflects on the co-signer. If they’re late with payments, it affects your credit—not just theirs. It also adds to the aggregate amount you could be responsible for in a worst-case scenario.
When it comes to credit, knowledge is power. Knowing the factors that affect your credit score can help you get the best possible terms when you do need funding for your business. For more about business financing, contact us at Pango Financial or call 1-855-WHY-PANGO (1-855-949-7264). Our specialists will show you how to craft a customized financial plan that supports your business.