Your credit score is going to be the number that can either help or hurt you in life. This is the number that lenders are going to use and decide whether to let you have that mortgage you so desperately want. It is also the number that is going to get you lower insurance rates, a better deal on entertainment and the like. You are warned from a young age that your credit score is going to be the basis for which your entire life will be played out. You never want to let this score drop, and you never want to do anything that is going to make this score change in the slightest. However, is this really practical? There are always going to be things that are going to be times in which your score is going to take a hit. But, the good news is that even with this hit, it is okay.
[Read: Ways to Fix Your Credit Score]
There are times in which you have to let your score take a hit. We will discuss three of the main reasons why, along with why these situations are okay for your credit rating.
Seeking Multiple Loan Terms
There are times in which you may feel that you need to get information on multiple loans. This is often the case when you want to ensure that you are getting the best rate out there and the lowest payment that you can possibly get. When you are looking in this manner, you are going to find that having multiple loan inquiries on your report can and will affect your credit score. However, keep this facts in mind:
- The score is only going to lower by a few points
- This request will be a hard inquiry on your credit report, which signals to lenders you have been shopping around for the best rate, rather than raking up credit
- The points that are lost can usually come back after a short period of time as long as you are paying on time
Starting a Business Lowers Credit
When a person is starting a business, they are going to find that there are several hits that their credit score is going to take. Starting a business is a huge endeavor. Not only are nerves tested and stress is accumulated with this decision, but there are affects against the credit rating that a person has. Why is this? There are several reasons why opening a business is going to affect the score of your credit, leading to your overall number lowering. These reasons include:
- Many business owners open up business lines of credit as a way to start out, they may utilize several different banks and lenders to find the best rates and terms, thus they are going to have several hard inquirers onto their credit
- Credit cards are often used to help start up a business, which is going to lower the overall credit score as the person uses more credit
- The debt to income ratio is going to increase when starting a business as the person is doing many things with credit, this ratio can greatly affect the overall score that a person has
Learning to Manage Debt with Debt Management Programs
There are times in which a person’s credit score is low due to the amount of debt that they have. We all understand that there are times in which having too much debt is going to adversely affect your score. Lenders view you as a risk for lending to and overall your score begins to drop. When this is the case, the person may be looking for help with dealing with their debt, which is a noble thing to do. However, through getting help through debt management programs, the person’s overall score is going to take a hit. Why is this?
- Enrollment with a debt management program automatically signals that you have debt issues
- Many times these companies negotiate your terms and repayment balance to get something that works better for you, resulting in you benefitting but your score losing
Why it’s Okay to Let Your Score Lower
These three scenarios mentioned beforehand are the times in which it is okay to let your score drop slightly. Consider these aspects:
- If you are seeking multiple loans to find the best one for you, you are saving money in the long run with taking this hit to your credit
- A new business is a great venture that could mean you succeed even more in the future. And as many people have pointed out, if you are successful it will take no time to get your credit back to where it was
- If you have too much debt, it is best to take the hit to your credit score than to let this debt get the best of you and result in bankruptcy or other situations.
[Read: 12 Surprising Ways You’re Sabotaging Your Credit Score]
Though it is great to have a high score on your credit, it is not always something that you can control. Though these three scenarios would lower the score, they are great things to happen in your life if they are needed.