The new business credit mistakes you make now could haunt (and cost) you for years to come. While it’s important to proactively work to build your small business’s credit, it’s equally important that you understand the right ways to go about it. Try these simple tips to avoid mistakes with new business credit.
Credit Mistake 1: Assuming You Can’t Get Approved for a Business Credit Card When You’re a New Business
Though it can be difficult to obtain your first major business credit card when you don’t yet have a formal credit history, you may increase the chances of being approved if you develop relationships with financial institutions/credit unions that also offer specific business credit card products. In some cases, they may be more likely to approve small business credit applicants with whom they have an existing relationship, through deposit accounts or similar products.
Credit Mistake 2: Avoiding Credit Products Because You Can Pay in Cash
New business credit mistakes often start when entrepreneurs assume they should avoid credit because they have no immediate needs to borrow. Unfortunately, these business owners may struggle to find competitive funding solutions when the opportunity to expand or grow comes — because they do not have the minimum required a credit score to apply for financing. (Lendr’s small business funding application criteria requires that clients have a credit score of at least 520.)
A business’s credit history is a longer-term view of your business’s ability to borrow responsibly, relative to the terms and limits associated with the credit product: The sooner you start to build a business credit history, the more time you have to build a strong credit profile.
Credit Mistake 3: Not Taking Advantage of Vendor Lines of Credit
Small business owners have opportunities to build credit through a variety of avenues, in addition to business credit cards. For example, many office supply stores or similar vendors may offer small business lines of credit, or offer a small business store credit card. Applying for a business line of credit with these vendors and using small amounts of the credit line every few months can help you build credit — and will cost you nothing, provided you pay your bills on time and in full before interest rate charges accrue.
Credit Mistake 4: Using Too Much of Your Available Credit Line
Your credit limits are likely to be low when you’re a new business just building credit. Overusing credit once it is obtained is one of the most common new business credit mistakes; it can make you appear like a high-risk borrower whose business is lacking in cash flow, and too reliant on credit. In addition to paying your monthly balances in full each month, try not to use more than 50 percent of your credit line, at any time.
Credit Mistake 5: Assuming All Financial Activity Is Reported to Credit Bureaus
Not all financial products or financing partners report activity to business credit bureaus. If you aren’t sure a creditor reports to a bureau — or whether the financial tools you rely on use credit — ask before you apply, or assume that your activity will make its way to your business credit report.