When setting up a business, entrepreneurs know how time-consuming and expensive it can be initially. This is why a lot of small business owners turn to additional financing to help cover the costs in the meantime but always they have to check their credit score.
One of the important requirements that funders look at in business financing applications is the credit score. A higher credit score will naturally generate a better possibility of getting approved.
1. Missing Payments or Paying Late Bills
Late or missed payments are one of the most damaging actions for your business credit score. Funders and creditors consider on-time payment to indicate your responsibility in repaying debt. Late payments stay on your credit report for about seven years and can lower your score by up to a significant amount of points.
2. Maxing Out Credit cards or Having High Credit Utilization
High credit utilization, the amount of credit you use compared to your credit limit, can hurt your credit score. Funders prefer seeing a low utilization rate because it shows that you can manage your credit responsibly. If you regularly use a high percentage of your credit limit, it suggests that you are overextended.
3. Inconsistent or Incomplete Business Credit Reporting
Funders and creditors use your credit report to determine whether you’re a good credit risk. If there is inaccurate or missing information, it can negatively impact your credit score. Make sure all your credit accounts are accurately reported, and regularly monitor your credit report for any inaccuracies.
4. Applying For Too Much Credit Too Quickly
Whenever you apply for credit, it triggers a “hard inquiry” on your credit report. Too many hard inquiries signal to funders that you’re desperate for credit, possibly lowering your score. If you’re shopping around for the best rate, it’s best to do so within a short window, as multiple inquiries within a specific timeframe are treated as one.
5. Having a High Number of Recent Credit Inquiries
Recent credit inquiries can lower your score, especially if they’re from funders considering you for new credit. The impact of inquiries decreases over time, but they can stay on your credit report for up to two years.
6. Forgetting to Monitor Your Credit Reports for Errors
Regularly monitoring your credit reports is essential to ensure that the reported information is accurate and up-to-date. Identity theft and credit report errors can cause severe damage to your credit score. If you find any inaccuracies in your credit report, it is essential to contact the creditors and/or the credit bureaus as soon as possible.
It may take time for errors to be corrected, but you must remain persistent in ensuring your information is reported accurately. You can also detect suspicious accounts or unusual activity early on when you regularly monitor your credit reports. Taking steps to protect yourself and resolve any issues quickly minimizes the impact of identity theft or a credit report error on your financial health.
7. No Diversification of Credit Portfolio
Having a good mix of credit also shows funders that you can manage different types of debt and make payments on time. At the same time, having a variety of accounts open and in good standing can demonstrate to potential lenders that you are reliable and responsible when managing your finances. Therefore, keeping your accounts up-to-date is an important factor for improving your credit score over the long term.
8. Mixing Personal and Business Finances
A big no-no is failing to separate one’s personal and business finances. This is very important for your credit score and your business’s success. If you mix personal and business expenses, it can be challenging to figure out which debts belong to the business and which belong to you personally. This can lead to confusion and harm your credit score.
9. Not Paying Taxes
The consequences of not paying your taxes are serious. You may be subject to fines, interest charges, and even possible jail time if you willfully evade taxes. Furthermore, it can hurt your credit score and make it more challenging to obtain additional financing or credit cards in the future. It’s important to understand that failing to pay taxes as they come due is more than just an inconvenience; it could have severe financial repercussions.
10. Closing Old Credit Accounts or Having a Short Credit History
A long credit history is an important factor in determining your credit score. Closing old credit accounts can shorten your credit history and lower your score. A short credit history can make it difficult for funders and creditors to assess your creditworthiness. Therefore, keeping older accounts in good standing is recommended, even when you aren’t currently using them. This ensures that your credit score remains high and that funders and creditors can trust your financial responsibility.
Applying for Financing is Easier with REIL Capital!
Your small business’s credit score is an important factor when it comes to applying for additional funding. However, the minimum requirement can be challenging to obtain from other funders, which is why REIL Capital has made it easier for small business owners!
Simply choose your preferred type of financing from our list of services, and you can contact our expert and reliable customer support team to help you make a better decision. And when you’re ready, then you can start applying for one. It’s that simple!
