4 Business Credit Blunders to Avoid

The credit score that your small business maintains is possibly the single most important factor determining your access to small business loans and other forms of financing support. So you don’t want to make any missteps that could set that score back! A few potential blunders are listed below – do anything possible to ensure that your business doesn’t fall into any of them.

1. Never make a late payment
This one should be obvious: if you make a late payment on anything, be it a credit card debt, a mortgage, a business expense or something else entirely, then your credit score is going to take a significant hit as a result. Payment history makes up roughly 35 percent of a FICO credit score – so keeping that history perfectly clean should be your top priority.

2. Don’t close a credit card unless necessary
It may seem like closing a credit card has no negative connotations, but industry experts suggest that closing a credit card can damage your credit score – because it lowers the overall amount of credit available to you. In fact, one individual suggested to CNN that business owners should even keep cards open and simply charge an item to them once a month – even a sandwich! – rather than actually close the accounts.

3. Maxing out your credit cards is also to be avoided
When you reach your credit limits on your cards, you’re sending a message to potential investors, and it’s not a good one. This, in theory (though not always in practice) shows that you can’t deal with credit well, and are often bumping up against your limits and capabilities. Perhaps even worse, it can also damage your debt-to-credit ratio, which is a big part of determining your credit score.

4. Co-signing on loans is also never advised
Here’s another trap you want to stay away from: don’t co-sign on loans, especially if they’re not related to your own business. You never want to leave the state and quality of your credit in the hands of another individual or entrepreneur. So no matter how many times – or how vehemently – you’re asked to co-sign on a friend or family member’s loan or home, avoid doing so at all costs. Even CNN notes that “co-signing is a disaster waiting to happen,” and you don’t want it to happen to you.