Common Mistakes That Hurt Your Business Credit and How to Avoid Them

Common Mistakes That Hurt Your Business Credit and How to Avoid Them

Common Mistakes That Hurt Your Business Credit and How to Avoid Them

Key takeaways:

  • Strong business credit can make it easier for businesses to qualify for certain types of financing. 
  • Business owners who check their business credit reports may find mistakes on their reports. 
  • Some errors can significantly impact creditworthiness and make it harder to get financing or other benefits. 
  • Understanding what to do if you find mistakes on your credit reports is the first step toward fixing them. 

You may know that checking your business credit reports is a smart idea. But what happens if you check your business credit and discover a mistake

Here are common mistakes and problems that can impact your business credit, and what to do if you discover these issues on your credit reports.

If you are just learning about business credit, here’s a quick overview: 

  • Business credit reporting agencies collect information about how business owners handle credit obligations such as lines of credit, business credit cards, and small business loans. They sell that information in the form of business credit reports and scores. 
  • Lenders may check business credit, personal credit, both. Some lenders require no credit check. 
  • In addition to payment history, debt, inquiries, and other factors may contribute to good business credit scores
  • Mistakes on business credit profiles can make it hard to qualify for financing, insurance, and even business partnerships. 

Learn more about how to establish business credit here

Which Business Credit Mistakes Are the Most Serious?

When you check your credit reports, you may find information that looks wrong. Some of the most serious mistakes that can appear on business credit reports include:

  • Negative information such as late payments, collection accounts, judgements, liens or even bankruptcy. 
  • Accounts that don’t belong to your business. 
  • Fraudulent accounts or inquiries. 
  • Incorrect UCC filings.
  • Lack of accounts reporting to business credit. 

Any of these can be serious if they put your business in a higher risk category. Even something that may seem innocuous, like a wrong industry code (NAICS or SIC code) can be serious if it makes your business appear more risky than it is. 

On the other hand, some information may seem wrong that isn’t. For example, a missing credit limit may not be a mistake: most business credit reports don’t list the names of companies that report (such as lenders or credit card companies). In addition, many accounts won’t list a credit limit. 

And one common mistake business owners make is failing to get accounts with providers that report to credit bureaus. Without accounts reporting, you won’t be able to demonstrate a positive payment history. And on-time payments are one of the best ways to build credit. 

What Will the Most Common Mistakes in Credit Score Be Due To?

The most common way mistakes appear on business credit reports is when information about one business gets mixed up with another. If your business name is similar to that of another business, it’s possible the business credit file of the two can get mixed up.

Here’s an example from the Florida Department of Corporations website. Note these businesses all have China 1 in their name, though they appear to be owned by different people at different addresses within the state. (And that’s just one name in one state.)

List of companies with the name China 1 in the business name retrieved from Florida Department of Corporations name search.
Source: Florida Department of Corporations name search June 24, 2024

For small business owners, this illustrates why you need to choose your business name carefully, whether you are starting a new business or changing your business name

Another fairly common mistake is out of date UCC filings. These are public record filings that lenders file when a borrower pledges something of value (inventory, receivables, equipment) as collateral for financing. Lenders and financing companies sometimes fail to release UCC filings after the debt has been paid. This can cause another lender to reject an application for lack of collateral. 

What Happens if You Mess up Your Business Credit?

Whether you’re talking about personal credit or business credit, credit repair often takes time. While you’re trying to improve your credit, you may find it more difficult to qualify for small business lines of credit other types of financing. 

It may mean you need to rely on personal credit instead of getting financing in the name of your business. That’s if your personal credit scores are good; otherwise you may find it hard to get many types of financing. 

You may wonder whether it makes sense to just shut down your business and start a new one, and start building credit all over again. That may not work. Business credit reporting agencies can often associate business owners with previous businesses they have owned. 

Can You Fix Bad Business Credit?

Yes, you can fix bad business credit, but depending on the type and severity of the information on the credit report, it may take weeks, months or even years to build back a strong business credit rating. 

The process for rebuilding business credit is similar to the process for rebuilding personal credit with one exception: there’s no federal law that limits how long negative information can appear on business credit reports, or how disputes must be handled. 

  • Depending on what’s bringing down your credit scores, you may need to take any of the following steps
  • Dispute information you believe is wrong with the credit reporting agency.
  • Get tradelines to add positive references to credit reports. 
  • Reduce credit utilization by reducing balances on revolving accounts like business cards or lines of credit.
  • Dispute UCC filings that have not been updated.  
  • Ensure future payments are made on time.

With personal credit, negative information typically can’t be reported after 7 years. There is no such time limit for how long negative information can remain on business credit reports. 

Read: How Long Can Mistakes Appear On Business Credit?

How Do You Fix Mistakes On Your Business Credit Reports? 

Each bureau has its own procedure for fixing mistakes on business credit reports, but typically you’ll need to contact the credit reporting agency to dispute the mistake. Look for the instructions provided when you checked your credit.  

Unlike personal credit, there’s no time limit by which mistakes must be investigated or corrected. Credit bureaus generally respond within a few days or few weeks.

Do Business Credit Cards Help Build Business Credit?

In addition to perks like cash back or travel rewards, business credit cards can be a great way to build business credit. Use a business credit card or business charge card to pay for business expenses, then pay it on time. As long as the issuer reports to business credit bureaus (most do), you’ll build a valuable credit reference. 

It’s worth noting that most small business cards are available to startups.  Issuers will often require a personal credit check and good personal FICO scores, though there are a few business credit cards for bad credit

Read: Which Credit Cards Help Build Business Credit?

What Are the Consequences of Defaulting on a Business Credit Card?

If you can’t or don’t pay a balance due on a small business credit card, one of several things can happen:

  1. Your card issuer may raise your interest rate and/or charge a late fee due to missed payments.
  2. After a period of time, your account may be closed and charged off, and eventually the balance may be turned over to a collection agency. 
  3. If you signed a personal guarantee (which most cards require), delinquency (late payments) may be reported on your business and/or personal credit reports. 
  4. You and/or your business may be sued for nonpayment.
  5. Your credit rating may decline due to late payment or other negative information. 

How Much Does a Business Credit Report Cost?

Unlike consumer credit, there’s no law that credit bureaus must provide business credit reports for free. 

A free Nav account offers summary credit reports and grades from two business credit bureaus, and one personal credit report score and summary. 

With Nav Prime™, the paid offering, you’ll get both personal and business credit scores* and Detailed Credit Reports from two leading business credit reporting agencies: Equifax® and Experian™, along with business credit scores Equifax® Business Delinquency Score® and  Experian™ Intelliscore PlusSM V2. 

Dun & Bradstreet Credit Insights offers a free plan with summary credit information. 

Nav’s Verdict

Building strong business credit allows entrepreneurs to separate their business finances from their personal finances. It can make it easier to get the financing your business needs. 

To help ensure your credit is as strong as possible, check and monitor your business credit on a regular basis. If you haven’t established business credit, consider getting tradelines that report, then pay them on time. 

And since some lenders also rely on personal credit, check your personal credit reports and credit scores too. 

Investing the time to build and maintain good business credit is an investment in your business financial health.  

*Nav provides access to Experian™ Intelliscore PlusSM V2, Equifax® Business Delinquency Score®, TransUnion®VantageScore® 3.0, and Experian™ VantageScore® 3.0. VantageScore is a registered trademark of VantageScore, LLC.

This article was originally written on June 24, 2024.

Rate This Article

This article does not have any ratings yet.

Have at it! We'd love to hear from you and encourage a lively discussion among our users. Please help us keep our site clean and protect yourself. Refrain from posting overtly promotional content, and avoid disclosing personal information such as bank account or phone numbers.

Reviews Disclosure: The responses below are not provided or commissioned by the credit card, financing and service companies that appear on this site. Responses have not been reviewed, approved or otherwise endorsed by the credit card, financing and service companies and it is not their responsibility to ensure all posts and/or questions are answered.

Leave a Reply

Your email address will not be published. Required fields are marked *