Starting a business can come with a lot of unknowns and many business owners spend their first few months learning from their mistakes. But when it comes to building business credit, starting on the right foot can save you lots of time and money in the long run. But since new business owners are entering uncharted territory when they start, often they fail to recognize the mistakes they are making until it is too late. To save you the trouble, here are three big mistakes new business owners make when it comes to building business credit.
Failing to make every payment on time
Like with your personal credit, your payment history is a huge factor in determining your business credit score. When your business is starting out, your finances can often come down to the wire in terms of making ends meet. Many new business owners will overextend themselves and end up forming a bad habit of paying late on their credit lines. There is no quicker way to harm your business credit that to habitually miss payments on your credit cards or business loans.
When you are starting out, set a precedent to never miss a payment no matter what it takes. A great way to do this is to always set up automatic payments from your business bank account. With automatic payments, even the busiest business owners can rest assured that all the bills are getting paid and you will damage your credit. Before you know it, you will be on your way to an excellent credit score which will allow you to get approved for the lowest interest rates at the most favorable terms.
Depending on your personal credit
When starting a business, it is all too easy for your business finances to get intertwined with your personal finances. While this is often somewhat necessary at first, it can quickly become an unhealthy relationship, particularly if your business financing relies solely on your personal credit. Using personal loans or credit cards to fund your business will not only get you nowhere in terms of building business credit, it can also make you personally liable if your business goes under.
Aside from building business credit, using a business credit card has a number of benefits including the ability to access a higher line of credit, the convenience of separating your personal and business expenses and the opportunity to rack up credit card rewards with business purchases.
Related: Self-Financing Your Startup
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