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When financing equipment, one key factor in the process is your credit score. Your credit score is necessary for two purposes:
- It determines whether someone will finance or lend you the equipment in the first place.
- It also determines the rates in which you are paying for said equipment.
One of the best ways to be saving money while leasing equipment is to have good credit. But how good of a credit score do you actually need?
Some would argue that you need your credit score to be as high as possible, but it’s actually a myth. Having a score in the 800s or even a perfect 900 doesn’t give you additional perks. Instead credit scores and the interests rates associated to them are linked by thresholds.
So What’s The Best Score To Have?
Based on the information linked above, you start to get the best perks when you have a credit score of 750 or more. In the eyes of banks, insurance companies, landlords and others, this is the magic number. Anything above that certainly is good, but as mentioned before, you won’t be getting anything better than what you’d get at this threshold.
How Do I Get To That Number?
Knowing the number is one thing, but it can actually be trickier to get to that score. You see, you don’t determine your credit score. That’s the responsibility of credit reporting agencies. In Canada the two biggest ones are TransUnion and Equifax.
They have specific tools and metrics to determine your credit score. Those tools don’t matter as much so long as you use the tactics mentioned below. These strategies are guaranteed to build your score up over time.
Pay Bills On Time
Payment history impacts credit scores highly for obvious reasons. In terms of leasing equipment, if your score is low, it can tell someone that you’ll struggle to make payments which isn’t good for them. Be good about paying bills on time, no matter what it is.
Keep The Credit Utilization Ratio Low
In a lot of cases, when you are leasing equipment, the lessor will be looking into your credit score rather than the company’s. As such, you want to make sure that your credit utilization ratio is as low as possible.
The credit utilization ratio is determined by how much debt you have compared to the credit limit that’s available to you. Good credit means that this ratio is very low. To do this, avoid maxing out debts or dramatically increasing this ratio. Credit reporting agencies are looking to see how financially flexible you are if things go wrong.
Never Cancel Credit Cards
This tip is connected to both credit history and your ratio. Cancelling a credit card is terrible as it shrinks your maximum amount of borrowing room. This boosts your credit utilization ratio which again is not good.
On top of that if you have had any credit history with that card, it would now be completely removed from your report.
As a result, only sign up for credit cards if you know you’re going to use it. On top of that, only use the card if it’ll help you in boosting your credit score.
Your credit score is a massive bargaining chip when dealing with other businesses. Even if the equipment leasing company is targeting your personal credit score, you can still leverage it if it’s solid. Good credit opens up doors and makes your life all the more easier.