Protect Your Small Business Credit Score
Small businesses don’t always have small expenses. As larger needs with your business come up, you’re going to want to explore some financing options. And that’s where it’s smart to know what a lender will be looking at in order to potentially approve you for financing.
Credit is credit, right?
There’s a difference between business credit and personal credit. Mistakes can happen when reporting on either, so don’t merely monitor your personal credit and think you’re in good standing if you haven’t checked on your business credit score. There could be errors in a business credit report you’re not aware of that may be interfering with your ability to get financing. Monitor that regularly too so you can catch surprises and hopefully clear up any problems that much faster.
When things shouldn't get personal…
Some business owners use their personal information to establish business accounts. Big mistake. Rather than use a social security number, use your tax identification, known as an Employee Identification Number (EIN) and your business name where appropriate. If this isn't categorized correctly, you could be helping yourself out on the personal side of things in terms of credit but your business won’t build credit the way it’s supposed to.
Don’t be late with bills. Ever.
Businesses don’t always have the benefit of a long credit history where a “red flag” can fall off a report after seven years. Perhaps you've only been in business for a year or two. So how good do you think it looks to have a few late payments in that short period of time? You guessed it – not the greatest. So take care of your bills on time and build a strong payment history. Doing so will paint a great picture of consistency that can only help your business credit and attractiveness to a lender.
Keep your maximum total to 30% of your credit limit.
Paying on time is probably the #1 factor when it comes to your business credit score. After that, however, is the amount that you owe that’s a percentage of available credit you have. To be specific, you should make sure the outstanding balance on your account is no more than 30% of your credit limit. That applies to your overall balances too, so no matter how many business accounts you have, keep the maximum balance 30% or lower of the overall total credit limit. Going higher than that 30% may drop your score down.