It is of course very important for business people to know and understand the mistakes that can damage your business credit score. If not, it is possible that your company will soon be out of business with huge losses. This depends very much on how much capital you spend on these business activities.
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As this is important, you are required to be able to build a good credit score for your business. This certainly brings a lot of benefits to your business, such as lower interest rates on business capital loans, business credit cards, credit lines, and supplier financing.
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10 Mistakes That Can Ruin Your Business Credit Score
Not all business owners have a good credit score. This is because there are many business owners who often make small mistakes when using their credit cards. These errors can be done unconsciously, but this certainly has a big influence on the business.
Even small mistakes can damage your business credit scores. So we would like to share more on the 10 mistakes that can damage your business credit score and how to avoid them. Let's go through them in details!
1. Co-signing someone else’s loan
This can be disastrous to your business credit score especially if the borrower fails to comply with the loan repayments. Whether you get the loan online or from somewhere else, it is very important to avoid such situation.
If you really want to be successful in business, you have to be more selective when deciding who you can co-sign a loan for. If necessary, find out the history of the borrower and the person’s financial ability to repay the loan.
2. Ignoring the signs of your credit problems
As a business person, you must check your credit report every month. The aim is to ensure your business is free from mistakes that can harm the company. If you procrastinate on this, it will be harder to correct the errors.
The errors can damage your credit report and damage your credit score. There are also other warning signs that you should take immediate actions, for example, missing some payments, being allowed to make minimum payments, etc.
3. Close old credit accounts
Looking for an unsecured loan for your business is not as easy as you think. There are many criteria that must be met. So, if you decide to close your old credit accounts, it is highly recommended that you rethink about it.
Such action is risky because it may reduce the value or credit score of your business. This is especially true if your old credit cards have good history, so you automatically remove all the good years of credit that had contributed to the current credit score of your business.
4. Making late payments
This mistake is often done by business people. But do you know that everytime you are late, it is a guarantee that your business credit score will reach a new low. So, it definitely affects the course of your business going forward.
Therefore, it is good to make sure that all types of payments owed by the business are paid on time in order to save your business from a declining credit score.
5. Maxing out your cards
Some business people assume that even if we maximize our business credit cards, we always pay the off and this will not affect our credit score rating. But, the fact is that credit institutions see this as risk.
Usually a person can use around 30 percent of their credit limit. If you go beyond this, it can be seen as an indicator that you are running into a financial problem. Apart from that, it is also very important for you to know how to calculate profit or the net income earned by your company.
6. Failing to utilize your credit
Another mistake that can also damage your business credit score is failure to use your credit. This is because a business person needs a good credit history to build your credit score. In addition, you also need at least one transaction per month to then be reported to the business credit reporting agencies.
This aims to ensure the credit rating shows that you pay on time on a monthly basis. This helps to improve your credit score.
7. Sharing you credit card number
This error can be very fatal because it can cause identity theft.
There can be scammers who can harm you credit score by doing unauthorized transactions without your knowledge. Some may use your credit card to buy items only known to. If this happens, you should immediately contact your credit card issuer.
8. Using credit cards too much for the rewards
If you use your credit card for non-intended purposes, it is important to remember that you are only increasing your usage ratio. We recommend not to use your business credit card chasing reward points unless you are absolutely sure that you will be able to offset the balances at the end of the month.
9. Opening new credit accounts every time
If you think having a new credit account every time is a good thing, you are making a big mistake. You should not be a victim of any credit card company. Opening too many credit accounts in a short time will always bring your business credit score down, whether you like it or not.
To avoid this, the best step you can do is to mark any credit card offers as junk so that you never be tempted to read them at any time.
10. Spending too long to shop for the best rate
It will not only reduce your credit score, but also hamper your business. So it is important for businesses to shop for mortgages, business loans, etc. in a shorter period of time. It is highly recommended that you shop for the best rate, and take a shorter time period.
In addition, there are other important things for you to know when running a business, for example: how to calculate profits in trading. That way you can know whether your business is getting profits or experiencing losses. You can then know what to do in the future to yield the best results for your business.
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