Credit Score Shock: Understanding Why it Takes a Hit
More often than not, businesses are using their own credit for business expenses, thus creating credit score shock. Whether it’s for fix and flip projects, paying contractors, or even a regular trip io Home Depot, it all takes a toll. By doing this, people are increasing their credit utilization rate to a concerning level.
Usage
Usage is tricky and counterintuitive, because it is constantly testing willpower. Looking closer, usage makes up 30% of your overall credit score. Not making payments on time can push this rate up to 35% or more.
MyFico
Personal credit cards are tracked by MyFico. Fico wants to see people at 20% or less of their available credit. We see a lot of people who have $50,000, $100,000, or sometimes even more in credit card debt. By continuing high usage habits or maxing out credit cards, it can create a hard hit against personal credit scores.
Debt Apples to Apples:
An example of this would be two individuals with similar jobs, income, and savings. Person A has $1,000 on a $1,500 limit card, and Person B has $1,000 on a $5,000 limit card. Both owe the same amount; however, Person A would take a harder hit because the credit utilization rate is much higher. Those who don’t owe very much could fix it quickly by simply increasing their credit limit through a different company.
In Summary:
What’s happening to the people who are not used to the higher percentages? The feds are going to make it harder to get funding until they get it to the point where no one is spending money.
Watch our latest video to find out more about credit score shock!
If you want to be in business and take advantage of the current market, give us a call. We can help you learn the ins and outs of what is affecting your credit score.
