Missing or Making Late Payments
One of the key factors used in determining your credit score is the history of payments that you make. How late or early you pay or forfeit paying your bills plays a very crucial role in determining your business credit score. Anytime you fail to submit your payments on time, it is a guarantee that your score is going to hit a new low. Most of us assume that missing two or three payments will not have as big impact on their score. This is just a misconception since even a single payment can deny you a good credit rating and categorize you in the fair credit rating which is so unfortunate.
Therefore, it is always crucial to ensure that all the necessary payments your business is owed by either creditors or vendors are paid on time. Just in case you forget to make a particular payment to a certain supplier, you may engage them in a gentleman’s agreement by requesting that the missed payment not to be reported to the business credit reporting agency. Such a step shall save you from bringing your business credit rating down.
Maxing Out Your Cards
As an entrepreneur, one rule of thumb is that at no time should you max out your credit card. Doing so will automatically raise your credit utilization ratio. The higher the credit utilization ratio, the higher the risk of watering down your credit rating. Most of us have the assumption that even if we max out our business credit cards regularly, we always pay it off and thus it will not have any impact on our credit score rating. This is your interpretation but bureaus interpret a higher utilization ratio in a different mind-set.
Credit agencies expect you to use only a portion of your credit limit. On average, one should only utilize at least 30% of the limit their cards have. Surpassing that is taken as an indication by banks that you are running into financial trouble. Just in case you see yourself using the credit card a lot, you may look for a debit card to use occasionally too. This is to ensure that your utilization ratio is low.
Failing to Use Your Credit
We have had cases in the past whereby some entrepreneurs have business credit cards but unfortunately they do not use them. This is not the way a credit card should be used. This is because you need credit history in order to build up your credit score. For the first six months you need at least one account which is operating. On the other hand, you also need at least one transaction per month to be reported to the business credit reporting agencies. This is all made to make sure that the credit rating for your business shows that you pay on time on a monthly basis.
In order to make sure that at least one of your payments is reported to the bureau, we would advise that you automate one of the bills you pay monthly via credit card from your phone. This is a better way to using your business credit card once a month which will improve your score overtime.
Sharing Your Credit Card Number
Whenever unknown people come asking for your credit card number, you should never ever disclose any information. Doing so could lead to identity theft. If you receive emails requesting for your name and credit number, what should hit your mind instantly is to run away or delete the message. These are scammers who can really harm your credit score by doing unauthorized transactions without your knowledge. Some may use your credit card to buy stuff only known to them and this can be so damaging bearing in mind that your utilization ratio may end up being too high which could damage your business credit scores.
When such a thing happens to you, immediately contact your credit card issuer for action to be taken before any damage is done. The golden rule however is that you must never give out any information regarding your credit card for the safety of your account and for the betterment of your credit score.
Incurring Too Much Expenses on Credit for Rewards
We all get excited whenever we hear that using your credit card will earn you cash back, rack up miles and so forth right? Many of us end up being victims of the same. If you use your card for non-intended purposes, you should remember that you are only hiking your utilization ratio. The higher the utilization ratio, the harder it affects your credit score. Most of the entrepreneurs get so nervous about these offers because the deals sound too good to resist. Due to this, we end up being unable to pay off the debts incurred. This is where the trouble begins.
If you are not sure on how you are going to pay off those debts just because you want some rewards, do not go for them. Do not buy the items that are coming with rewards. On the same note, it is worth remembering that if you fail to repay these debts on time, you will incur interest rates overtime that you will also be required to pay. The late payments will really tumble your credit score and even bring it close to nothing. Our advice is, do not use your business credit card extravagantly chasing reward points unless you are sure that you will be able to offset the balances at the end of the month.
Opening New Credit Accounts Every Time
If you thought having a new credit account every time is a good thing, you should have changed your mind set as early as yesterday. You should not be a victim of every credit card company that comes up with their amazing offers. Opening too many accounts within a short period will always bring your business credit scores down whether you like it or not. How does it do that? First of all, it shortens your average account age by negatively impacting on your older accounts.
On the other hand, many inquiries will be made to the new accounts and this can equally affect your credit score negatively. To avoid the temptation of signing up for new credit accounts, you can mark any card offers as trash or spam so that you never be tempted to read them at any time.
Taking Too Long to Shop for the Best Rate
Many business owners usually prefer taking a long time when shopping for mortgage loans, auto loans, business loans and many others. However, shopping for too long will be costly to your business since it lowers your credit score. This means that whether you are shopping for a mortgage, student loan or even auto loan, you are supposed to do it within a shorter period of time. This is because any hard inquiries made on your account for a period longer than 30 days will affect your score. Our advice is, if you are going to shop for the best rate, take a shorter period of time.
The above mistakes can really damage your business credit scores if not taken into consideration. They may seem to be very easy but it takes a lot of sacrifice to adhere to them. Make it a habit and part of your plan to avoid making this costly mistakes that may hurt your business credit scores.