Having good business credit is essential for small businesses. It can provide low interests rates, higher credit limits, better borrowing terms, and even lower insurance, but it does require maintenance. Protect your business and credit by not making these 10 business credit mistakes.
- Not intentionally building credit.
Business credit is not automatic. You have to intentionally look for vendors, suppliers, and credit cards that specifically report to the credit bureaus.
- Co-signing for others.
This is one of the biggest business credit mistakes. If you have to co-sign for someone else, go over the repayment terms in the contract and the repayment plan with the borrower. Ideally, it would be a short-term loan (less than 3 years) with terms they can easily meet.
- Not checking your credit reports.
Credit reports should be accessed and combed over on a monthly basis. Waiting will make reconciling your accounts and reporting inaccuracies or mistakes harder to do.
- Missing or making late payments.
One late or missing payment can take your credit score down 3-5 points.
- Sharing confidential information.
Protect your business’ information by not sharing important information (e.g. credit card numbers, address, bank accounts, etc) unnecessarily. Be mindful of the possibility of identity theft and fraudulent activity.
- Having credit cards and not using them.
Companies require at least one transaction per cycle in order for your activity to be reported to the credit bureaus. If you’re unsure of how to use a credit card, setting up one bill pay account can help.
- Maxing out credit cards.
Utilization ratios pay a role in your business’ credit score. Experts say to keep utilization at or below 30%.
- Opening and spending based on rewards.
Opening up too many cards within a short period of time (2 years) is harmful to your score. Trying to open credit cards and spend money based on rewards or perks is dangerous to your business.
- Shopping interest rates for too long.
Create a plan for what you need and compare lenders before you start applying. Hard inquiries on your credit report for longer than 30 days have a huge negative impact on your credit score.
- Closing old accounts.
Try to repurpose old credit card accounts instead of closing them. Closing these accounts deletes all of the positive payment history associated with them and lowers the length of your credit history. If your oldest is 10 years old and you delete it, your credit history will only be as old as the next oldest account.
Managing a business has its ups and downs but avoiding these common business credit mistakes can help make receiving financing in the future a lot easier. For more information on business credit or if you need to increase your business’s cash flow, contact DAL Commercial Capital today.