1- Paying Late or Not Paying at All
While a late payment here or there might not seem like a big deal, it makes a huge difference when calculating your credit score; 35% of your credit score is based on your payment record. Basically, the lender wants to know if you borrow money, do you pay it back on time.
2- High Credit Card Balances
Your available credit will affect 30% of your total score. It’s always best to have unused credit. If your credit card balance is high, relative to your credit limit, your score will go down. Luckily, improving your credit utilization is not as hard as you might think. These numbers impact your credit score with each new billing cycle. Pay down your credit card and leave your credit limit high to quickly improve your score.
3- Closing Old Credit Cards
When it comes to credit, longer is better; 15% of your credit score is based on the length of your credit history. Closing old credit cards, especially your oldest card, makes your credit history seem shorter than it really is. Many people recommend using your older (and sometimes less-used credit cards) to automatically pay one or two monthly bills. These cards are often closed by providers for inactivity, so make sure you keep them in use.
4- Too Many Credit Requests
Credit inquiries account for 10% of your credit score. A sudden surge in requests for new credit will send the wrong message to the credit bureaus and can drop your score. Before applying for a business loan, consider when you last applied for a credit card, took out a car loan, or purchased a new home. The drop in your credit, due to multiple requests, is temporary. It might be worth it to wait until those items have fallen off your credit report (this typically takes 2 years) so that you can qualify for a better rate on your business loan.
5- Closing Cards with Remaining Balances
Many people think having fewer credit cards is a good thing. But when you close a credit card that still has a balance on it, your credit limit drops to $0 while your balance remains. Some bureaus might interpret this as you’ve maxed out your credit card and consequently drop your credit score. Word to the wise: if you want to close a credit card, make sure you pay it off first.
Credit: by Dan Bischoff/Lendio