When you borrow money, it can have both positive and negative impacts on your credit score, depending on how you handle the financing. Here's what you should consider:
Positive impacts
Building credit history: Successfully taking and repaying your financing option can help build a positive credit history if the product reports on your credit score, not all business products do this reporting. Lenders will see that your business is capable of managing debt responsibly.
Credit mix: Having a variety of credit types (e.g., loans, credit cards) can positively influence your credit score as it shows you can handle different forms of credit.
Increased credit limit: If the funding increases your overall available credit and you manage it well, it can improve your credit utilization ratio, which is a key factor in credit scoring.
Negative impacts
Hard inquiries: After you’ve applied, if you accept an option, some lenders will perform a hard inquiry on your credit report, which can temporarily lower your credit score.
Increased debt load: Taking on new debt increases your overall liabilities, which can significantly raise your debt-to-income ratio.
Missed payments: If you miss or make late payments, it can hurt your credit score. Consistently meeting payment deadlines is crucial for maintaining a good credit score.
High credit utilization: If the loan amount is high relative to your available credit, it can increase your credit utilization ratio, which might negatively affect your credit score.