18 July 2018

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10 Financial Mistakes to Avoid for Small Businesses

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Being self-employed is a dream for many of us. Running a business is a smart way to achieve this dream. Building a credit for your own business is the highest rapport that you can earn for running a successful business.

A great business credit can bring to you many benefits like a line of credit, credit cards, business loans, low-interest rate and many more.

However, not many entrepreneurs enjoy a good credit score. It could be due to the small yet important mistakes committed unintentionally using the credit cards that they often commit and not even realize it. Such mistakes reach business credit companies, thus damaging your business’s score of credit. Let’s have a walk through to such intense yet small mistakes that are instrumental in demolishing your business credit score and also the ways to keep them at bay.

Becoming a Co-signer of Other’s Loan

It could be a token of empathy or friendship for you but it may often prove to be detrimental to your business. What if the borrower could not respect the conditions of loan repayment or fail to repay altogether? By becoming a co-signer you take the partial accountability of the borrower. If the borrower cannot repay the loan it will surely impact your own credit negatively as well.

The best way to ward off any such situation is to be very selective to co-sign for any loan. Better to thoroughly research and find the background of the borrower regarding the financial capability of the borrower to repay the loan.

Not Taking Action on getting Warning Signs

Often entrepreneurs wait for your annual report to see their credit report card. Why wait so long?  It is always suggested to keep a keen eye on your credit details occasionally. You must check your credit logs every month to make sure it is clean and clear. The more you avoid, the tougher it turns out to correct the errors. It could pierce a deep hole in your business credit rating.

You’ll always get warnings that you must immediately act upon. It may include you are asked to pay minimum funds, skipping payments, seeking zero-rated credit cards and also searching zero-interest balance transfers. If you ignore these warning signs you really have to pay heavily by tarnishing your credit report.

Maxing Out Your Credit Cards

Being an entrepreneur, make it a point not to max out your credit card at any point in time. This will increase your credit utilization ratio. It is always better to have less credit utilization ratio. Even if you have to consume your all credit limit, make sure you pay it off regularly.

Your credit agency wants you to use a part of your credit limit. The best cut off limit is 30% of the limit your cards have. If you cross this limit it is a warning sign for your credit agency that you are reeling under a financial crunch. So it is advisable to have debit card also to use if often to keep the credit utilization ratio low.

Skipping or Making Late Payments

Your history of making payment is the deciding factor of your credit credentials. How delayed or quickly you make payment or skip payment of your bills are instrumental in ascertaining your business credit score. If you skip paying or fail to pay anytime, your score will surely hit the low. Missing even one payment can hit your score badly.

Therefore, make sure you have made all the mandatory payments your business owes, this may include credit to your creditors and vendors.

Not Using Your Credit Card

Failing to use your business credit cards at all is also not acceptable. You must also use your credit care at least once a month for the initial six months which needs to be informed to the credit reporting companies. This ensures whether you pay on a monthly basis or not.

It is best to automate any one of your bills that you will have to pay monthly. The rule of thumb is to use your business card on monthly basis to increase your credit score.

Using Credit Cards for Rewards

This could be the biggest mistake to ending up your credit card just to earn cash back, rewards or discounted coupons. This, in fact, is a trap. Without any need, if you simply swipe your card more often to earn rewards or coupons, do not forget it is catapulting your utilization level. Higher utilization ratio is always bad for your business credit score.

You should only use your credit card when you really think you want to or you are in need of. Just to earn few reward point do not exhaust your credit utilization limit. The irony is when you could not repay these outstanding within the given time, your interest rates will keep rising which you will have to pay. This late payments will again weaken your credit report. So, it is wise decision not to swipe your business credit card to chase the repository of reward point.

Frequently Opening Fresh Credit Accounts

Opening new credit account very often is viewed suspiciously. Do not fall prey to every credit offering agency that comes your way with really amazing rewards and offers. Opening credit account frequently in short time also lowers your business card scores. It reduces your average account length by adversely influencing your earlier accounts.

It is suggested to spam or trash your credit card offers to avoid reading or falling prey to these.

Taking Long Enough to Get the Best Rate

Most of time business owners take a lot of time to apply for business loans, auto loans etc. But it may reduce your credit score if you take too long to decide. Whatever you are planning whether a student loan, auto loan etc., do it faster as any inquiry made after the lapse of 30 days on your credit account will adversely impact your credit scores.

These are some of the major mistakes that can actually cut down your business credit scores if you fail to take care of it at the right time. Although, all are quite easy steps but may need many sacrifices to comply with it. If you are running a business, make these rules your habit to avoid any mistake that can damage your business credit rapport.

 
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