Entrepreneurs are usually prepared to put in a lot of effort to take their businesses to the next level and often put everything, including their personal finances and relationships, at stake. Unfortunately, they sometimes take on too much debt and are unable to make the repayments on schedule. It results in their credit scores getting damaged, which affects their ability to access credit on attractive terms and impacts their profitability. Entrepreneurs need to understand and appreciate that as important as chasing business growth is, it is also vital to protect and nurture the credit score of the business as it plays a key role in supporting and growing it over the long-term. Some important tips on maintaining a good business credit rating:
Ensure That You Pay Your Bills on Schedule
It can be tempting to ease the pressure on your cash flow by delaying the payments of your bills. While if there are any special circumstances, you can always negotiate with your creditors to extend your credit period, bank loans and credit card payments generally have to be paid on schedule. Not paying on time can easily hurt your credit score as the creditors will report it to the credit reporting agencies. Furthermore, by maintaining a good payment record, you will be able to maintain a healthy relationship with your creditors that can help you to make your business successful.
Limit the Use of Credit to the Minimum
It is often necessary for small businesses to access loans from banks or use credit cards to fund their operations, however, owners must keep a strict watch on the level of debt they are taking on. In general, you should only take on debt when the return on it from business operations is significantly more than the cost of the debt and when you are sure that you will be able to repay it on time. Restrict the use of revolving debt on your credit cards because the rate of interest can be steep, warns Gary Saitowitz. Also, keeping your credit utilization ratio under 30% avoids hurting your credit score, according to https://money.cnn.com.
Use Credit to Boost Credit, Advises Gary Saitowitz
You can only build your credit if you use credit, so using only your cash accruals for your business operations is not necessarily a good thing. Use your credit cards selectively, taking care to pay the statement balances in full on the due dates every month. Also, access bank credit as the prevailing rates are at a rock-bottom level now and can be safely used for business expansion. However, using restraint is important. Avoid closing your credit card accounts even if you don’t require them as the low credit utilization ratio helps to boost your credit.
You should always stay on top of your business credit score by periodically obtaining the credit reports from all three credit rating agencies and checking them thoroughly for errors. Be sure to report mistakes and follow up to ensure that they are set right at the earliest to avoid any negative impact on your credit score. Here’s a great guide on credit score monitoring from Credit Suite.
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