How to Get Smart About Your Credit Profile

September 6th 2019 at 9:00am Published by sharpshooteradmin

Small business owners should always try to maintain a good credit score, irrespective of the circumstances. When you first start your business, you have to be careful about the decisions you make and the strategies you choose. Being irresponsible with your cash reserves and your credit during the initial phase of your business can derail your progress for the time to come.

Your business credit profile is one part of your business that you cannot afford to be careless with. Even the slightest neglect can come harm you down the line. Some of the things most entrepreneurs are guilty of doing that can harm their credit score are:

  • Confusing personal credit with business credit: Your personal credit funding and liabilities should be separate from the credit you have for your business. A proper distinction should be set between the two so that you don’t end up misusing funds arranged for your business.
  • Not Repaying Funding Installments on Time: If you’ve taken small business funding from a bank, you will also have to adhere to a strict payment schedule drafted by the bank itself. This payment schedule should be followed since the inability to do so can significantly reduce your credit score.
  • Taking Multiple Funding and Not Repaying Them on Time: This neglect can significantly damage your business. Don’t opt for funding you do not have the resources to repay. We understand that a liquidity crunch can take over your rationality, but you shouldn’t compromise your credit score for some immediate cash.

These errors, and many others made by entrepreneurs, can damage the credit rating of a small business. Small businesses and startups are already on shaky grounds, which is why the slightest error in judgment can lead them into further chaos and uncertainties.

Having a good credit profile isn’t just useful for securing funding, but it is also an evidence of your prudence as an entrepreneur. After all, an entrepreneur with a good credit score is often perceived to be diligent, cautious, and dedicated.

We want you to know beforehand that there isn’t a quick fix for a less-than-perfect credit score. The recovery process will take place one step at a time. If you want to improve your credit score, be calm and consider taking the following steps.

Make Your Profile Accurate

The first step towards being smart with your credit profile is to make sure that it is accurate. All credit bureaus around the globe go the extra mile to ensure that their clients’ information is accurate, but an error on their part can lead to multiple problems.

Providing the incorrect address or outdated company info can damage your profile. All three of the major credit reporting bureaus, Dunn and Bradstreet, Experian, and Equifax, have methods in place to make sure that verifiable errors are corrected.

In the worst case scenario, these errors will badly affect your credit report and make you ineligible to apply for small business funding.

Keep Personal and Business Credit Separate

Carrying on from what we have mentioned above, your business and personal credit should be separated at best. Most business owners or entrepreneurs will find this challenging, especially during the start of their business journey. When cash is a bit hard to come by, they can mix their own personal credit with that of the business and make things complicated.

Your business credit should be treated separately, and you should find solid ways for keeping your personal credit out of your business.

To start off with, you should take extra precaution to not use your personal credit card for business dealings. Apply for a separate credit card for your brand and make sure you follow that card for all business transactions.

We’ve also seen a lot of entrepreneurs relying on their personal credit for financing business decisions. This can be naïve because you’re not spending time into building your business’s credit profile. Once you need bigger funding from somewhere to finance a major expansion move, you’ll find no options at your disposal since you don’t have a credit profile for your business yet.

Be Transparent with Dealings

Once you’ve applied for funding, you need to be transparent with the funder. Do not make the error of duping information, thinking that it will help you get funding.

Regardless of the industry you operate in, every funder will want answers to the following questions when you’re applying for small business funding:

Can You Repay Funding?

All funding agencies, including banks, will run a background check to see if you’re capable of repaying the funding. Your funding agency will identify this by asking questions pertaining to your income statements and cash flow position. They want to ensure that you have the resources to repay the funding.

Will You Repay Funding?

The second question all funding agencies have is slightly different, but it is still important. This is where most funders look at your creditworthiness to determine whether you will be making timely repayments based on how you’ve fared in the past. Anyone who hasn’t been making timely funding repayments in the past would not be trusted with a new funding.

Will Your Business Make Every Funding Payment?

The final question will concern your business’s ability to make each and every funding repayment on time. If your financial profits have been inconsistent, then there is doubt over whether you will have the ability to make consistent repayments.

There are numerous strategies that you should adopt to boost your credit profile. We believe the above-mentioned information can help you in achieving a better credit score.