How Excessive Credit Card Debt Is Killing Your Chances Of Obtaining Financing
Lately we have been noticing that a lot of the equipment lease request that the banks are turning down, are being turned down due to our clients have to much revolving debt. If you are utilizing more than 30% of your available credit, then you are using too much! Your credit score is directly effected by your credit utilization.
So if you already have a few negative marks on your credit report AND you have keep a high revolving balance, your score is being made even lower by your credit card usage. If you pay down your credit cards you will see an immediate credit score increase.
How Credit Card Utilization Effects Your Credit Score
A business owner utilizing only 20-30% of their available credit with NO other blemishes on their credit, will usually score around a 715 – 690, but if that same business owner was utilizing 50% of their available credit with NO other blemishes, they will usually score around a 640! Big drop and yes, the interest rates offered to them will be much higher then when their usage was between 20-30%.
Now lets say the business man is using 70 -80% of their available credit. With no other blemishes they will usually have a credit score under 610. Yes, officially in the poor credit range. This is where you start seeing high interest rates and loan denials. At this point, we can only approach our bad credit lenders in order to obtain equipment leasing for them! All because of too much revolving debt!
What To Do Before You Apply For An Equipment Lease or Any Kind Of Bank Loan
Before you apply for any type of financing, business or consumer. You should pull your credit report to look for errors. Correct those errors and make sure the correct information is being reflected on your credit report.
Creating A Budget
Next create a budget to start paying your debts down! Start with the high interest debts first. If you have 1 credit card with a low interest rate you can move your higher rate cards balances to it and concentrate on paying that off quickly. DO NOT CLOSE THE HIGH INTEREST RATES CARDS. You want to make your available credit as high as possible. Keep them open but don’t use them.
- If you don’t have a low interest card to move your balances to, then look into getting a debt consolidation loan.
- Make sure you are paying more than the minimum due on your credit cards.
- Do not be hesitant to inquire about getting a lower interest rate in order to lighten your debt load.A quick call might be all it takes in order to get a more competitive rate and facilitate real savings.
- Evaluate your spending habits. Do you still need cable? More and more people watch programs online. Look for ways to save money besides the usual cutting back on eating out and avoiding Starbucks! Look at your credit card statement. It will often break down your credit card usage. Is a large portion of that going to entertainment? Cancel memberships you aren’t using regularly, really start to re-evaluate the way and where you spend your money
Make Decreasing Your Credit Card Debt A Priority
Credit cards can offer many advantages and increase spending options, especially for entrepreneurs. But out of control spending on credit cards will bring your credit score down so much that obtaining business or even consumer financing will become expensive or even out of your reach. Also keep in mind that one of the biggest reasons consumers file for bankruptcy is due to their credit card debt!
