Having and maintaining a good business credit rating is vital in getting funded and maintaining your business’s financial health. Unfortunately, many entrepreneurs are inadvertently damaging their credit rating with their errors.
In this article, we are going to examine four major mistakes that might be damaging your business credit and what you can do to avoid them.
Business Loans for Bad Credit: An Expensive Option
Before talking about the mistakes that are hurting your business credit, let us clear one thing – loans for business with bad credit are available, but the caveat is higher interest rates. Also, the loan conditions are much tighter than for businesses with a good credit score.
So, if you are an entrepreneur or small business owner with poor credit, you can get access to funds, but using these loans will further weigh on your finances in the long term.
Hence, if possible, start working towards bettering your credit score so you do not further strain your finances.
9 Business Credit Score Mistakes That Hurt Your Business
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Blending Personal and Business Finances
One of the most common business credit score mistakes made by small business owners is not keeping their personal and business finances separate. Running business expenses on personal credit cards or using your personal credit to get a business loan can harm your business credit score.
Solution: Open a separate business bank account and charge business purchases to a business credit card to establish a good credit history for your business.
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Late or Missed Payments
Paying bills on time is important to have a good business credit score. A single late payment can dramatically decrease your score and make it hard to obtain future financing.
Solution: Automate payments or reminders to pay all bills, loans, and supplier invoices on time.
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Overlooking Credit Utilisation Ratio
Most entrepreneurs do not know that using their credit cards or lines of credit to the limit can hurt their credit score. A high credit utilization ratio indicates financial instability to lenders.
Solution: Try to maintain your credit utilization at less than 30% by controlling spending and paying down balances regularly.
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Not Monitoring Business Credit Reports on a Regular Basis
Mistakes or fraud on your business credit report can decrease your score without you knowing it. Most business owners don’t check their credit reports, and as a result, missed inaccuracies.
Solution: Check your UK business credit reports on a regular basis to spot and correct any inaccuracies as soon as possible.
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Not Maintaining a Business Credit Account
Most small business owners use only personal credit for business payments. Without a business credit account, they do not get to establish a good credit record for their business.
Solution: Obtain a business credit account and utilize it responsibly to create and enhance your company’s credit rating.
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Not Registering for VAT Where Mandatory
Companies that cross the VAT threshold need to register for VAT. This leads to penalties and affects business creditworthiness since credit agencies will interpret this as poor financial management.
Solution: Monitor your turnover and register for VAT when necessary to prevent penalties and ensure financial credibility.
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Seeking Too Much Credit in One Sitting
Each time a company seeks credit, a hard inquiry is performed, which decreases the credit score temporarily. Excessive applications over a short period of time indicate financial trouble.
Solution: Seek credit only when required and satisfy eligibility requirements prior to submitting applications to prevent redundant hard inquiries.
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Not Developing Relationships with Suppliers and Lenders
Good relations with lenders and suppliers can translate into more flexible terms of credit and favorable conditions in times of financial stress. Most entrepreneurs overlook this area, which makes it more difficult to obtain good credit terms.
Solution: Foster long-term relations with lenders and vendors through regular payments and effective communication.
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Failure to Keep Business Information Up-to-Date
Incorrect business information, e.g., incorrect address or erroneous financial information, will result in credit bureaus reporting incorrect credit activity and the subsequent lowering of a credit score.
Solution: Update your credit agencies and lending institutions with updated business information at regular intervals to maintain accuracy.
Conclusion
Paying attention to a high business credit score is vital for obtaining low-cost financing and for developing your business. By staying away from these seven common errors — combining personal and business money, paying bills late, neglecting utilization of credit, not looking at credit reports, applying for too much credit simultaneously, not caring about supplier relationships, and failing to update business information — you can enhance your credit status and benefit from improved financial situations. Taking action today will ensure that your business’s financial future is secure.
