Why Your Business Credit Score Might Drop Suddenly
Most businesses know of the basic guidelines that you can follow when you want to build your credit score. However, many are not aware that most of the actions that you can take can make your credit score drop suddenly. Fortunately, many of these credit score drops are not permanent, and you can recover your credit score. In most cases, when you apply for a new credit card or pay off a loan, it will be beneficial when you get past the initial fluctuation. In this article are ways that you may cause your credit score to drop, whether you realize it or not.
Applying for a new credit card
When you apply for a new credit card, the card issuers will check your credit report to see how much of a risk you pose before they extend a line of credit. Due to this credit check, your credit score lowers a few points temporarily. Plus, when you have a hard inquiry, which is a card issuer going through your credit report, it will be in your business report for two years. Fortunately, credit checks are not bad when they happen in moderation. Besides, applying for credit cards is among the first steps to building your credit, and when you use them correctly, they will increase your credit score. So spread out your credit card applications overtime when it’s time to apply for one. And apply for a new credit card at least once every three months. If you already have a low credit score, wait longer between applications.
You missed a credit card payment
The payment history is an important factor that helps determine your business credit score. So, when you miss a payment or delay one, it immediately drops your score. Also, issuers and lenders always care about how your payment history is, as it indicates your risk. Hence it is best to consider working with companies that help build business credit for employees and businesses fast as they can help you plan how to make payments to improve your score. Plus, how fast your score will bounce back after a missed payment is dependent on your payment behavior and credit history. So aim to start paying on time quickly to stay on track, and your score will improve along with your payment history. So create an on-time history and pay in full.
Charging a large purchase on your credit card
Although credit cards are convenient when you want to make a large purchase, leaving a high balance on your card will have a credit bureaus report that you have a high credit utilization rate. This means that they can tell how much credit you are using in comparison to the amount you have available. Hence, aim to have a low utilization rate instead of using a lot of your available credit limit. Therefore, try to keep your credit utilization rate below 30%. Before you make your next purchase, that you will charge a hefty expense and ensure that you can pay it off in full before the end of the billing cycle. Notably, not only will a hefty balance on your credit card increase your credit utilization rate, but it will also have a lot of interest.
You closed your credit card
When you close your oldest credit card, it drops your credit score as it lowers the overall limit to credit that is available to you. Also, the length you have had your credit card makes up to 15% of your score. Hence it is important to build credit from a young age, and the longer you have credit, the better the chances your credit score will improve. Therefore, if you have to close your credit card, you must discuss that with your issuer to get advice from them on how best to go about it to avoid affecting your credit score.
To conclude, it is important to understand what may affect your business credit score. This is both for it to go higher or lower. The above points are essential to help you understand why your business credit score might drop suddenly. Noting that as it drops it affects a lot for your business to move forward.