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In today’s uncertain economy, your credit score has more importance than ever. As a business, it will be used to determine if you can obtain financing from a lender and ultimately what the associated cost will be for the credit extended to you. Today there is more information than ever circulating about what is best for your score. Separate fact from fiction with these common credit score myths:
1. Co-signing on an account does not make you responsible for it
By co-signing on an account you are legally responsible for any activity involving the account. This means the transactions (for better or worse) will show up on your score. If you co-sign on a friend’s loan and they decide not to make the payments, your score will certainly be adversely affected. It’s especially important to be aware of this when you are operating a business with a partner.
2. Your score will drop if you check your credit
This is simply not true. Checking up on your own credit score is defined as a “soft inquiry” which does not affect your score. What does affect your score are “hard inquiries” like those from a lender or creditor. I would encourage you to check up on your credit score at least once a year to better understand your financial performance and ensure your credit score is accurate.
3. Closing old accounts will improve your credit score
Many people think closing old and inactive accounts is one way to improve your credit standing. However, in most cases this will actually cause more harm than good because it will make your credit history appear shorter. Credit bureaus as well as lenders want to see that you have experience in the credit arena so it’s important to show them your past. While it may make sense to close old accounts because you no longer use them, you may be erasing evidence of responsible behavior your lender would want to see.
You can check your score through one of the leading credit bureaus, but a good rule of thumb is to not do this often. Also remember that your business credit score is completely different than your personal score, but both might be used when applying for a small business loan or cash advance. That being said, make sure you also keep your personal credit in good standing, as it will help out greatly when applying for financing.
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