Last Updated on December 21, 2022 by Selina Parker
As business owners, you are under constant pressure to meet demands and deadlines with your time stretched thin. It often leads small business owners to let things slide, negatively affecting their overall credit rating.
Many business owners are not aware that they’re making common mistakes with their business credit every day. When you have a small business, staying on top of everything can be challenging, and you know the right moves. But there is a good chance that one or more of these seven common mistakes could be hurting your business credit that you were unaware of.
This article will look at the seven most prevalent errors small businesses make and provide tips for avoiding them.
BUSINESS CREDIT MISTAKES YOU’RE PROBABLY DOING
1. NOT MAKING PAYMENTS ON TIME
When calculating your business credit score, your payment history is just as important as your personal credit history. When you’re just getting started, your finances might frequently be on the verge of collapse to make ends meet.
Because of this, small business owners tend to be less proactive with paying their credit card debt on time. Paying late on your business credit card or business loans is the fastest way to damage your business credit and derail your credit report.
2. NOT UPDATING BUSINESS INFORMATION
If your business changed its name, phone number moved, or underwent a restructuring, make sure to update your profile with the appropriate business credit reporting agencies and business credit bureaus.
You can also include your website, social media links, and contact info. It will help potential creditors verify your legitimacy as a business owner.
Updating this information regularly not only helps creditors contact you with ease but also helps to improve your business credit report.
However, it is imperative to keep your business’s information separate from your personal; if your company has a different line, don’t list your cell phone number.
3. NOT CHECKING BUSINESS CREDIT REPORT ERRORS
According to a 2013 survey conducted by the Wall Street Journal, “only one in three small-business owners has looked at his or her business credit reports within the last two years.”
Among the companies that did check their reports, one-quarter said they discovered mistakes or missing financial data putting their company in a riskier category. It might result in a vendor or supplier denial of trade credit because the firm is labeled “risky.”
Ensure your personal and business information is correct before applying for business credit. Remember to include company data like sales and income numbers.
The three major business credit bureaus, Dun & Bradstreet, Experian, and Equifax, provide free reports.
4. RELYING ON PERSONAL CREDIT
If you’re a new business owner, you may not have built up your company’s credit score enough to qualify for the business card you’ll require in the future. A personal credit score may be required to get the initial line of credit.
The difficulty is that your business and personal finances will soon become intertwined. When it comes to taxes, or if the company fails, you’ll be personally liable.
Separate your personal and business credit by taking minor actions like opening a small company bank account and building a business credit score so you can utilize your company tax ID number to get credit.
5. TAKING LOANS FROM LENDERS THAT DON’T REPORT TO THE CREDIT BUREAUS BUSINESS
There are numerous methods for business funding, but not all of them will improve your business credit scores. If the firms you’re borrowing from don’t report your activity to the credit bureaus, you won’t be building business credit, and your credit limit may be affected despite making all your payments on time.
6. USING A PERSONAL CREDIT CARD OR CHECK TO PAY BILLS
Business owners should refrain from using their funds to pay business bills. The company will not receive credit for this activity when you purchase with personal funds.
The credit file is only supposed to reflect its financial performance, and using personal payment methods may confuse.
7. OBTAINING BUSINESS CREDIT CARDS THAT ARE PERSONAL
Business credit cards sometimes connect to the cardholder’s credit files. Many small businesses lack a credit history that card issuers may use to assess a company’s financial condition through the owner.
It’s an important distinction to keep in mind because on-time payments and good financial conduct may benefit a person’s credit score rather than the business’s credit history.
These are just some of the many ways businesses can damage their credit scores when applying for new lines of credit or working with suppliers and vendors. Look out for these mistakes to avoid them and keep your business credit healthy.
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ABOUT THE AUTHOR
“What began as a life and career coaching services company to aide entrepreneurs through the early-stage challenges and tough transformations of starting a social venture has evolved over the years to include mergers and acquisitions, organizational consulting, and business growth advisory services to mission-driven organizations that strive to improve access to basic physiological, safety, and security needs while increasing their profit margin. Clients include founders and organizations with the purpose of addressing deficiencies in delivering quality healthcare and mental health services, sufficient employment, access to clean water and air, safe shelter, adequate food, and more.”