A high debt to credit limit ratio is not a good thing to do on a new loan because it will impact your business credit scores many different ways. By now you should be able to guess at most of them and understand why but let’s go over them just to be sure.

You have an inquiry, at least one and perhaps more and depending on how many and what your credit score is at the time will determine how much it affects your credit scores.

1) You have a new loan.
2) You have no history on this new loan.
3) It has a high balance.
4) It has a high debt to credit limit ratio. These reasons alone can cause your credit scores to drop significantly that you should be concerned about doing so.

The solution is to get a high enough credit limit on revolving accounts that you won’t need to use more than 45% of available credit on your account. If it is an installment loan, then the impact will be less felt but still have a significant impact on your credit scores. The solution here would be to pay down the loan to less than 80% debt to credit limit as soon as possible. I have one friend who will borrow more than is needed on his loan so that when the loan closes, he pays down the loan 20% to have his debt to credit limit at 80% as soon as possible. This will minimize the impact on his credit scores and keep his scores higher than someone who doesn’t do this. For those who need to keep their credit scores as high as possible for business reasons or for investing, this is a great strategy to use. It takes some money management and if your credit scores are high to begin with, then you stand a great chance of being able to qualify for the higher credit limit to use this plan. To your success…

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