It's important to build a good business credit score when seeking business financing. You will stand a better chance of loan approval with a good credit rating. Usually, lenders, investors, and potential partners consider the business credit score and ratings to determine the level of risk. Hence, when looking to build business credit, you must make smart business decisions. This article examines the common mistakes businesses make when building business credit and how to avoid them.

1. Failing to update business information

Paying attention to detail is imperative when building your business credit ratings. If a business changes its name or address or undergoes a restructure, it's important to update the profile with the business credit bureaus. Some business owners fail to update their business information, a mistake that affects their business credit. The solution is to update all the crucial information and supporting documents. Ensure you keep your business information separate from your personal information to build your business credit effectively.

2. Failure to monitor your business credit 

You must stay updated on your business credit report as a business owner. Ignoring credit reports can be drastic as you can miss errors like discrepancies or outdated information. Businesses made the mistake of failing to monitor or pay close attention to the business credit reports. As a result, the inability to correct a report can impact your credit rating. 

The solution is to monitor your business credit score and stay on top of things to dispute any mistakes quickly. Monitoring the credit report allows you to see any negative information showing up on the credit report and know what to do to improve your score. It can also help you discover mistakes or missing financial data.

3. Making late payments

Your payment history is an important consideration when calculating a business credit score. However, some business owners pay their bills late, hurting their credit ratings. Credit reporting agencies will read that your business is low on cash flow and financially irresponsible. The solution is to establish good payment habits. It will help build a solid payment history and improve your credit score. Credit reporting agencies usually give a high credit score if you make early payments. You can also create a business line of credit to keep the business running without cash flow gaps.

4. Paying bills with your finances

Every business needs to keep personal and business finances separate. One benefit of separating personal and business finances is the opportunity to build business credit. If you make business purchases on personal credit cards, you won't be able to build business credit. Using personal finances to pay business bills can also lower your credit score in case of bankruptcy. The solution is to keep your credit cards and bank accounts separate. It will help build business credit while avoiding personal liability.  

5. Maxing out credit cards 

Carrying high balances impacts the debit-to-credit ratio, harming your credit score. Credit reporting agencies are likely to monitor your credit habits. If you pay your outstanding balance on time, agencies will read the high utilization ratio as a risk. The solution is to stop overspending and keep the credit card utilization at 30% of the total credit limit. 

Bottom line

A good credit report can show the lender that your business is creditworthy. It makes it easy to avail of future loans and can help you score the best interest rates on other credits. So, you need to develop good credit habits when building a business credit history.