Don’t Be Afraid To Ding Your Credit Score

Your credit score is a very important aspect of your financial life. The thought of doing anything that could ding it may put you into panic mode. If you are one of those people that obsess over hard and soft hits to your credit score, or are hesitant to make any financial moves when your FICO score could take a hit, this blog post is for you!

Your credit score is a sacred number. It helps determine your eligibility to obtain a loan, and get a low interest rate on that loan. As important and sacred as your credit score may be, don’t let it hold you hostage. Keep in mind that all credit scores fluctuate from time to time. With that in mind, there are times when it is acceptable or reasonable to make a smart financial decision that you know could negatively impact your credit score.

Five Times It’s Ok To Ding Your Credit Score

  • To Start A Business: A credit card can be a great means to start up your business. However, the biggest thing to keep in mind is your ability to pay back your debt, even if the business were to fail.
  • To Apply For A Better Credit Card. Do you know the interest rate on your current credit card? Is it 20%? Is it 26%? Is it evencredit card hand higher? If you are paying interest on a high-rate card, applying for a credit card that offers a lower interest rate is not a bad idea. Your credit may take a small hit, but the benefits of paying less in interest will far outweigh this small dip.
  • To Increase Your Credit Limit. Increasing your credit limit on your credit card can lower your credit utilization ratio. According to Entrepreneur.com, the average hard inquiry only knocks your credit score down five points. However, improving your credit utilization ratio will result in improving your score more over time. A good rule of thumb is to try and use only 30% of your available credit. This may not always be possible, but it’s a good place to start if you want to improve your credit score.
  • To Refinance A Loan: A loan application will result in a hard pull to your credit; however, if you are refinancing your loan for a better interest rate, the pros outweigh the cons. You will be paying less in interest, which means putting more money back in your pocket!
  • To Add To Your Credit Mix: Your credit score is made up of: payment history, credit utilization, length of the history of your open credit, new credit/inquiries, and your credit mix. If you currently have a mortgage, it can be a good thing to add a credit card to your profile in order to broaden your credit and diversify your portfolio.

Bottom Line: Don’t be afraid for your credit score to take minor hits if it means long-term benefits. As with anything in life, the best things do not come easy. Sometimes we have to take minor risks in order to reap future benefits.

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