A business’s credit rating is an important factor that can have a huge impact on its ability to survive in today’s competitive marketplace. Good business credit allows the firms that possess it to take advantage of a level of financial flexibility that is simply unavailable to their credit-challenged competitors. An excellent credit file can mean the difference between enviable success and dismal failure, in the business world.
And, a business’s standing with the credit bureaus is not just important to lenders. Suppliers, clients, and even potential business partners may all look to a business’s credit rating as a key indicator of its overall credibility.
If one is not careful, a business’s credit rating can be every bit as fragile as it is important. Credit missteps can put a business in financial hot water, and some of them can seem fairly innocuous at the time. Of course, hindsight is always 20-20, and the damage caused by these mistakes too often becomes apparent only after it is too late.
So, what mistakes must business owners avoid in order to protect their business’s credit ratings?
Not Monitoring Business Credit Ratings
In order to cultivate a solid business credit rating, business owners must keep an eye on their business credit reports. These reports can be obtained from the major business credit bureaus. Monitoring them is crucial, as it allows business owners to make sure their creditors are properly reporting favorable payment histories.
It also permits them to dispute reporting errors, which can do serious damage to a credit rating if left uncorrected. Subscriptions such as CreditMonitorTM from Dun & Bradstreet can help make keeping tabs on one’s business credit file simple and easy.
This one should go without saying, but late payments are, of course, best avoided. Payments on credit cards, lines of credit, loans, and even utilities should be made as early as possible, in order to maximize business credit ratings. This goes for business accounts and personal accounts, as personal credit often comes into play when creditors are evaluating a potential borrower’s creditworthiness.
Maxing out Your Accounts
This one can be difficult to avoid when cash flow is tight, but maxing out available balances can really do a number on your business credit score. Not only that, but the interest payments on large balances can snowball into an unmanageable cash flow burden.
Keeping balances below 30% shows creditors that a business takes its credit ratings seriously, and is not desperate for capital. Plus, if your balances are kept low, the financial flexibility offered by your business credit cards will be available, should a cash flow emergency arise.
Closing Old Accounts
Keep those old, underutilized credit card accounts open, even if the terms they offer are not particularly enticing. The ages of a business’s oldest accounts affect its credit rating. Having aged accounts still open shows that a business is capable of maintaining a long-term financial relationship.
Not Comparison Shopping
Whether your business needs a business loan or a new business credit card, it pays to shop around. True, the bank with which you have your business checking account likely offers business credit cards and loans, but are they the best deal? Simply settling for the first reasonable offer that shows up in your mailbox could mean you are missing out on more attractive opportunities.