7 Mistakes That Can Ruin Your Business Credit ScoreWe all make mistakes, especially with our personal credit when we’re younger. When it comes to your business credit though, some of these same mistakes can hurt you big time and affect the ability of your business to take out new loans or get favorable terms, potentially putting you out of business.
From paying bills late to mismanaging the balance on your business credit card, here are some common mistakes small businesses make that can cause major damage to their credit.
1. Using Personal Credit Cards for Business Use
83% of small business owners consider credit cards an essential part of their funding, according to the Meredith Whitney Advisory Group. Unfortunately, most small business owners don’t use credit cards properly. Some use their personal credit cards for business expenses while others use business cards that aren’t actually reporting to their business credit fit.
Discover and Capital One are two popular business credit card issuers that will report your activity to your personal credit. This means your activity could hurt your own FICO score and prevent you from building the business credit that you desperately need.
Down the line, you may find yourself in need of additional funding without the ability to secure it because of this impact of personal credit cards or business cards that aren’t reporting for your business.
2. Mismanaging Your Card Balance
Avoid carrying a balance on your business cards that’s close to the limit, even though it can be hard to avoid at times. A practice known as credit card blocking — in which a merchant asks your card issuer to block or reserve a portion of your credit line to cover expected expenses — may just push you over your limit.
As with your personal credit, you ideally want to carry a balance of more than 15-25% o your limit to avoid dropping your business credit score.
3. Paying Bills Late
Most people have overlooked a bill or two in their life and made a late payment. This can be damaging to your business credit as well as your personal credit. If you’re one of the millions of small business owners who relies on your personal credit to secure business loans, you could be putting yourself into hot water here.
Keep in mind many lenders now use a blending scoring model that looks at both your personal and business credit to decide if your business is credit worthy.
4. Ignoring Personal Credit
As a small business owner, your personal credit matters just as much as your business credit — sometimes more. It pays to clean up your own credit file and boost your personal credit as much as possible before you apply for any business credit cards or loans as banks view small businesses as the same as the owner.
5. Getting a Credit Card Without Shopping Around
There’s no doubt that getting a business credit card that reports to your business credit file is a good way to build credit. This doesn’t mean all business cards are the same. Too often, small business owners take the first credit card offer they find without doing their homework. This can be a huge mistake if you sign up for a card with high interest rates, late fees or short grace periods.
6. Carrying a Balance on One Card
Spreading out your balances on your business credit cards is key to maintaining a healthy business credit score. A common mistake is having numerous business cards but carrying a high balance on only one. Fix this problem by transferring or paying down balances so they are distributed across all cards evenly. This lowers your debt-to-equity ratio and improves your sore.
7. Closing Unused Accounts
Finally, do you have credit accounts for your business that you don’t use? Don’t make the mistake of closing them as this will lower your available credit and harm your credit score.
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