Mistakes comes in different varieties. Some mistakes you make when you do something wrong. Some are made when you don’t do something you should have or could have. And some are mistakes other people make which, in turn, affect you.
When it comes to your business credit, each of these types of mistakes can affect your credit reports and scores, which in turn can impact whether you can get financing and how much you’ll pay for it. Ultimately, your business could suffer.
If someone else makes a mistake that impacts your business credit, you can dispute the error and hopefully get a correction or update to your credit reports. For example, if a creditor reports you were late when you weren’t, you’ll want to get that fixed. Or if a commercial credit bureau mixes up information about another client with your information, you will want that fixed as well.
But there are some completely avoidable mistakes you may be making right now. Fix them and your credit could be much better off. Here are five:
Keeping Too Low a Profile
Credit scores use data to evaluate and predict risk. Without data, it’s hard to create a predictive credit score. Business owners often don’t do business with the lenders, vendors or suppliers that will report their payment information to commercial credit agencies. As a result they have little to no business credit history.
Solve It: Do business with companies that report to business credit bureaus, then pay on time to build valuable credit references. (If your existing suppliers don’t report, here’s how they can do it.) Nav’s free BusinessLauncher tool gives you the names of companies that report and steps to build business credit.
Not Preparing For Cash Flow Crunches
Most businesses operate with little left over to pay unexpected expenses. When cash flow is tight, they may not be able to pay all their bills. Missed or slow payments can wind up on credit reports if those lenders or vendors report. And those late payments can significantly impact their business credit scores.
Solve It: Set up a business line of credit or consider a business credit card to help tide your business over. And implement strategies to improve cash flow. (Here are 21 ways to boost your business bank account.)
Letting Taxes Slide
One of your most important responsibilities as a business owner is to make sure your business properly files its tax returns and pays taxes on time. Not doing so can be a costly financial mistake, as penalties can be severe. In addition, if your business falls behind on tax payments, the IRS or state taxing authority may place a tax lien. Tax liens often appear on credit reports and can impact your credit scores.
Solve It: Work with your accountant to make sure you are budgeting for tax payments. If you are behind on federal tax payments and a business tax lien has been filed, find out whether your business is eligible for the IRS Fresh Start program. If so, you may be able to get your tax lien withdrawn while you make payments.
Ignoring The Fine Print On Loans
Some lenders will place a UCC filing to ensure a lien against your business property. This helps protect them if your business defaults. UCC filings appear on business credit reports and multiple ones can make a business appear riskier.
Solve It: Read your contract so you understand whether the lender will place a UCC filing. (Ask the lender if it’s not clear). If one is filed, make sure it is released once the debt or financing is paid off.
Letting It Go
Business owners are often racing to put out one fire after another. You definitely don’t want your credit reports to cause you unnecessary stress or to delay financing. The sooner you address small issues, the less likely they are to become serious problems. In addition, staying on top of your business and personal credit scores can be an advantage when it comes to getting financing. The Nav American Dream Gap report found, for example, that business owners who know their business credit scores are 41% more likely to get approved for a business loan.
Solve It: Monitor your business and personal credit reports on a monthly basis. A quick scan can alert you to important changes and help you identify areas for you to focus on.