When you start your business, most people start with no credit and have a clean slate when it comes to credit. However, once you get your first credit, it could mean you are moving towards bad or good credit, depending on how you manage your finances and settle the credit. It is vital to know how to avoid bad credit. Making the right choices with financial accounts and making the right choices with the credit you get is an important step. There are other ways that you can try below to help you avoid bad business credit.
1-Pay bills on time
If you need to avoid bad credit, this is the first thing that you should do monthly. Plus, your payment history is the main factor in what is affecting your credit score. Thus, when you miss some payments by a month or more, it can negatively affect your credit score. Also, if you miss payments often, it can lead to worse things as charge offs, collections, foreclosure, and repossession. So to avoid bad credit, ensure you pay your bills timely every month to avoid being reported to credit bureaus as you do not want your credit report reading negatively.
2-Learn to manage your money
Get good at managing your money if you want to avoid bad business credit. Not everyone is good at managing money, and if you are one of these people, it will most assuredly affect your loan and credit payments. Due to this, you will get a bad credit score. Therefore, learn to manage money as it is beneficial in many ways as you can also manage your personal credit. Plus, you can protect your credit score, keep away from debt, and it will allow you to reach your financial goals.
3-Develop healthy savings
It is vital to develop healthy savings if you want to avoid bad credit. Although, in most cases, your bank balance is not a considered factor when it comes to your credit score. For this reason, when you save money, it will not impact your credit score. However, when you have this money in your savings account, it is much better than having none. Since it will help you solve some of the issues that, in most instances, lead to having bad credit. As an example, you can make debt payments and others, especially when you have a large unexpected expense. Also, if you sort your credit with your rainy-day fund, companies that help build business credit without a personal credit can help you to improve your business credit score if it’s affected.
4-Avoid taking too much debt
What is your level of debt? Depending on the amount of debt you have, it can influence your credit score. Since your business credit score contributes to how your credit balances to your credit utilization. Also, how your original loan amount compares to your loan balances. Therefore, it is important to make loan payments regularly and keep your credit card balances low to lower the amount of debt that you have. Importantly, when you have a lot of debt, it will affect your payment habits. Also, it makes it difficult to make the monthly payments, and due to this, you miss payments.
5-Know the bills that report to the credit bureaus
Be familiar with the bills that report to the credit bureaus to be safe during months you have little cash, and you are not able to pay for all the bills. This can happen to anyone, as the business can be challenging if there is a financial crisis, among other issues. Hence, you may need to pay some bills and not pay others. Thus, because you are avoiding bad credit, in such a situation, make payments to bills that report to the credit bureaus and have a plan in place to clear the others before you get caught up. To protect your credit score means staying current on all bills on your reports, but you can deal with the ones that report to the credit bureaus first.
6-Consider every business expenses you take
Thinking before you take new expenses for your business is another way to avoid bad credit. If you have a business expense every month, whether you are upgrading your business, buying a new car, among others. This will affect your ability to make ends meet, and it will lead to you having bad credit. This is common when you find yourself adding up many bills to your business every month that eventually affect how you pay all the expenses. Therefore, before you commit to any business expense, it is important to consider how it will affect your overall credit amounts.
7-Minimize on business credit card applications
An inquiry to your credit report is done with each credit card application you make for your business. These inquiries affect up to 15% of your credit score, and if you are not careful, they can drop your points too low. This is in regards to the information that your credit report already has from previous business credit cards. Importantly, not only will you have too many inquiries, but the many credit card applications will mean a lot of balances, credit cards, and a lot of payments you have to be making. Thus, recognize when you are having trouble and seek other better ways to deal with credit than resorting to credit cards to sustain you. Plus, if you cannot have your business sustain itself, you will end up in bad credit.
In summary, even when life changes can affect your business, making it had to be on par with managing your credit. The above ways will help you to avoid getting into bad business credit. So try some of them to ensure you survive and maintain your credit to keep your business afloat and help you grow in it. Get your foundation in order and work on building your business credit when you get stable again if your credit was affected.