Business owners have a lot of choices today. But sometimes they don’t get to choose and must follow the rules. When it comes to business credit, you need to follow the rules or you could make mistakes that cost you money. Learn what is true and false about credit so you can do things right.
Mistake #1: “Business and personal credit are reported the same.”
This is false. There are three major personal credit bureaus and three major business credit bureaus.
Personal credit: TransUnion, Experian, & Equifax.
Business credit: Dun & Bradstreet, Experian, & Equifax.
Business and consumer data is stored in the same places. But they are different. Business credit reports use different numbers, scores, and rules than consumer credit reports. Companies do not have to follow specific rules when buying business credit reports. But they do for consumer credit reports.
Mistake #2: “I have business credit because I pay vendors and creditors.”
Having lots of vendors or creditors does not mean they will show up on your credit report. Some lenders don’t give information to the people who make credit reports. This means that even though you are paying bills, it can look like you are not using credit.
Mistake #3: “Paying on time will give your business the best scores.”
It is important to pay your bills on time. Paying them before they are due can help you get the best credit score for your business. Choose what works best for your company. Early payments can make your business credit ratings better.
Mistake #4: “Hard inquiries do not hurt business credit scores.”
Some people think that inquiries have no effect on business credit. This is not true. Too many inquiries can make your business score go down. It has less of an effect than it does on personal credit, but it still matters.
Mistake #5: “You do not really need business credit.”
Sometimes you can offer a personal guarantee, but the person you are giving it to may still check your business credit. Business credit is not regulated so they don’t have to tell you. People who work with your company may stop working with you if they don’t like what they see in your business credit. If your business credit is bad, people will think that you are too risky and cannot handle the account or that your company may fail. Your partners or accounts do not need to tell you why they don’t want to work with you anymore or why they chose a different company. Having good business scores can help you get more money, show that your company is strong, and make it less risky for people to borrow money from you.
It can be a bad idea to use your personal credit for business. If you do this, it might be hard to get a loan for something like a home. It is better to keep your personal and business money separate.
Mistake #6: “We have been in business a long time, so I must have great business credit.”
Never assume you have good credit. It is common for people to find out they don’t have any credit or that their credit is bad because of something bad on their record. If this happens, companies may not be able to get a loan or the loan might cost more money. To avoid this, check your credit before trying to get a loan so you can fix any problems with your credit.
Be mindful of your credit
Pay attention to your business and think ahead. Some companies don’t know their credit is a problem until it is too late. If you see something wrong or bad, talk to an expert and ask what can be done to fix it. More people understand how important business credit is now, but some still don’t know how much damage it can do.