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Common Mistakes That Can Harm Your Business Credit Score

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Business credit scores play an essential role in the success and stability of a company. Having a good score can lead you towards more opportunities and realize the full potential of your venture.

July 28, 2023
Author: NCH

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With this in mind, it’s important for small business owners like you to maintain a healthy score. One of the best ways you can do this is by learning the dos and don’ts of credit management. 

If you want to improve your business credit score, you’ve come to the right place. In this blog, we’ll discuss nine mistakes that could drop your score and how you can avoid them. 

Eight Mistakes You Need to Avoid

You need to avoid eight mistakes if you want a high business credit score. Refrain from doing the following if you want to have and maintain a good credit score for your business:

Making late payments

The payment history of your business is one of the key factors that influence your credit score. Every time you miss a deadline, your score takes a hit and decreases by a few points. 

If you don’t want your score to drop, you need to build the habit of paying your bills on time. Doing so lets you avoid late payments and maintain good standing.

You can set alarms on your phone or calendar to ensure you don’t miss your due dates. However, if you tend to forget things, you can set up auto-debit payments. This feature will help you pay your loans on time, avoid unnecessary purchases or expenses, and prevent your score from declining.

Ignoring your score

Ignoring your business credit score is another common mistake you need to avoid. Keeping track of your credit reports minimizes errors and missed deadlines, allowing you to adjust accordingly and improve your score. 

We recommend checking your score at least every three to six months. You can do this using the free credit reports from Experian and Dun & Bradstreet. We also advise getting their paid reports for a more comprehensive look at where your business credit stands. 

If you see any errors or mistakes in your reports, you must dispute them with your credit reporting agency. Correcting these errors takes time, so rectifying them as soon as possible would be best.

Letting your loans pile up

When you take out too many loans within a short period of time, it indicates that you’re credit hungry, which lenders consider a red flag. 

Although having a mix of credit accounts is good, you must balance the number of secured and unsecured loans you have. Only apply for loans or credit cards that you know you need. 

Using your personal credit card to pay bills

Using your personal credit card to pay your loans makes it harder for reporting agencies to track the payments your business makes. Keep in mind that lenders use your score to gauge your company’s financial health. 

If your personal payment gets into the mix, they’ll have a harder time determining whether your business is creditworthy. Additionally, mixing your personal finances with your business could also make you liable for any debt it incurs. 

Guaranteeing someone else’s loan

While there’s nothing wrong with being a guarantor of a third-party loan, your business credit score could suffer if the borrower fails to pay their debts. 

When you agree to be a guarantor, you’ll be responsible for the repayment of the loan. This means that if the third-party defaults, you’ll have to pay for the money they borrowed. 

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Before you co-sign another person’s loan, check their background and financial history to see if they can pay off the loan before you agree to be their guarantor. 

Closing old credit accounts

The length of your business’s credit history is another key factor that affects your score. The longer your history is, the higher your business credit score will be. However, if you close one account, its entire history will be removed from your report. 

Let’s say your business has been using the same credit card for five years, and you decide to close it because you’re no longer using it. You’ll lose the five-year history from your report, leading to a decline in your score. 

Restructuring your loans

Loan restructuring happens when a business negotiates with creditors to lower their interest rates or extend payment terms. This approach can help you make your debt situation manageable. 

However, once you restructure your loan, it’ll be recorded on your credit report. This could cause you a few points. Furthermore, potential lenders could see this as a sign that your business is incapable of repayment. 

If you’re having trouble paying your loans, avoid applying for new ones until you’ve cleared your balance. This way, you can pay off your debts and maintain a good business credit score. 

Maxing out your credit card

When you max out your credit card, your credit utilization rate increases. Credit utilization rate or ratio measures the amount of credit you’ve used from your account. It’s a key factor that makes up your business credit score.

Ideally, your ratio should be under 30%. Anything above that could hurt your rating. Lenders see high credit utilization rates as a sign that you’re desperate for credit. Some may even think that your business is in financial trouble. 

To prevent this, avoid using your credit card every day. Instead, use a debit card to pay for your daily expenses. Doing so will help you keep your ratio low and maintain good standing with creditors. 

Improve Your Business Credit Score Today

Improving one’s business credit score is not easy. It takes a lot of time and effort to maintain a strong rating. But by avoiding these eight mistakes, you’ll have an easier time building a strong business credit profile

If you’re having trouble boosting your score, NCH is here to help. With extensive knowledge in building credit, NCH provides personalized strategies tailored to your company’s unique needs. 

Our team of business specialists will help you understand why your business credit scores are low and work with you to create solutions to improve your rating. 

Whether you’re a budding entrepreneur or a seasoned business owner, NCH is here to help you succeed. To learn more about our services, visit our website here or call us at 1-800-508-1729.

DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.

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