5 Mistakes That Can Damage Your Business Credit
A good business credit score offers huge advantages, including low interest rates on loans, higher credit limits, lower insurance premiums and better supplier financing. Unfortunately, many entrepreneurs inadvertently damage their company credit ratings due to bad habits and poor decisions. Here are some of the most common ways business owners harm their credit scores.
Closing old accounts: Generally speaking, it's usually a good idea to do away with needless cutter. In the business world, however, this can have negative consequences. If you choose to cancel an old credit account, it could actually worsen your score, especially if the account was in good standing. Remember that available credit plays a big role in determining your business's credit rating. Even if you never plan to use a credit account, just having it available can elevate your score.
Not paying on time: How early or how late do you pay your bills? The answer to this question will go a long way toward driving your credit score up or down. Anytime you fail to pay a credit account by the given due date, you can virtually guarantee a drop in your overall score. If you don't have the funds, there may not be much you can do. If, however, you are late due to procrastination or forgetfulness, you are risking your business's credit score for no good reason.
Using too much credit: Credit utilization ratios are a key factor in determining a company's credit score. When you leverage your credit, you automatically increase your credit utilization ratio. From a lender's point of view, it's not usually a good sign when a business needs to use credit to keep itself afloat. Credit agencies expect you to use only a small portion of your credit limit. If you use more than 30 percent, banks may see this as a sign that your business has run into financial trouble.
Not using enough credit: Even if you secured your credit accounts for emergencies, you should use them at least once a month. If you don't, you won't be reported to the business credit reporting agencies. Ultimately, if you want to improve your credit, you must demonstrate your ability to make consistent payments. If you have no usage or payment history, your rating isn't likely to improve. Be sure to use your credit accounts here and there, and pay them off in a timely manner.
Opening too many accounts: If you open too many credit accounts within a short period of time, you will see a drop in your score. Not only will this shorten the average age on your existing credit accounts, it can be viewed as a sign of financial distress. Credit card companies are always looking for ways to attract interest from business owners, who consistently see generous offers flood into their mailboxes. Resist the temptation to seize every great offer and focus on building your credit over time.
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