Your business credit score isn’t just another number.

A strong business credit score can mean lower interest rates and more favorable terms.

It’s a key indicator of your enterprise’s stability and credibility – and unlike your personal credit score, it’s searchable by anyone, including potential customers, suppliers, insurers, investors, and lenders.

What Is a Business Credit Score?

Business credit scores are produced by three main credit reporting bureaus – Experian, Equifax, and Dun & Bradstreet – and are typically shown on a scale of 0 to 100. Like personal credit scores, they’re based on a mix of factors, including payment history, credit utilization, and account age. They may also incorporate some factors that are beyond your control, like the overall riskiness of your industry, but for the most part, they’re a reflection of how well your business handles its finances.

Without an established business credit profile, your ability to secure financing and investments will be limited
to what your personal credit can support. A strong business credit score can mean lower interest rates and more favorable terms.

Looking to optimize your credit and expand your potential for growth? Avoid these seven common pitfalls.

1. Choosing the Wrong Business Structure

   As a small business, it’s easiest to start out as a sole proprietorship, which is fast and low-cost to establish but isn’t conducive to separating your finances or mitigating risk.

   Forming an LLC (limited liability company) or LLP (limited liability partnership) is often a smart strategy because
   it can protect your personal assets and credit from business debts and missteps – and vice versa. For larger enterprises, forming a C-corporation or S-corporation can offer additional protections and opportunities for raising capital. Consult a tax advisor for details.

2. Signing Up for Business Credit Cards That Are Really Personal Credit Cards

   Countless credit card products are out there, many of which are marketed toward entrepreneurs, so it really pays to do your due diligence. Some cards may offer business-related perks, like rewards for airfare or office supplies, but if they’re linked to your personal credit profile, they’re not doing your business credit any good.

   Be sure to comb through the fine print to ensure that your transactions are reported to the major business credit bureaus. If you apply for a business credit card and are denied because your business lacks credit history, look into getting a secured business credit card with no personal guarantee. That way, you can start building business credit with minimal cost or risk to you or your company.

3. Paying Bills With Personal Cards or Checks

   Regardless of payment form, commingling personal and business transactions is never a good idea – it complicates bookkeeping and tax filing, jeopardizes your personal assets, and sets you back if you’re trying to build business credit. Once you have a dedicated business credit card that reports to the business credit bureaus, use it consistently and responsibly.

   Of course, it’s important to avoid overspending because you’ll want to keep your credit utilization low (many experts suggest a threshold of 30%) and be able to pay your bills in full and on time. But it’s also important not to let your lines of credit sit unused since only recent payment data counts toward your business credit score (while adverse items like judgments and tax liens can stay on your record much longer).

4. Using Trade Credit From Non-Reporting Vendors

   When vendors allow you to order inventory or materials and get invoiced later, it can be a real boon to your cash flow. Using trade credit can also bolster your business credit – but only if your on-time, in-full payments are being reported.

   Many vendors don’t report positive transactions to the business credit bureaus. Some may only report delinquencies and other adverse items that would lower your score. Seek out vendors that report payments across the board or encourage the vendors you’re already working with to establish accounts with the major bureaus. As a last resort, contact the bureaus and ask how to manually submit your own records.

5. Getting Behind on Bills

   Just like your personal credit score, the biggest single factor that influences your business credit score is your payment history. Make timely and complete payments a priority.

   If you’re facing cash flow challenges, look into affordable financing solutions like accounts receivable financing
   or a secured business line of credit. You can also try to negotiate with your suppliers – it’s always better to be transparent and proactively ask for revised payment terms than to default on the payment and risk harm
   to your credit.

6. Neglecting Your Business Credit Report

   On both the personal and business side, it’s a good idea to check your credit report regularly. Unlike personal credit reports, you aren’t entitled to a free business credit report every year, but it’s well worth a modest fee to ensure that there aren’t any errors or signs of fraud that could be dragging your score down.

   If something’s awry – whether it’s a misreported late payment or a credit inquiry that you didn’t initiate –
   file a dispute with the credit reporting bureau immediately.

7. Failing to Update Your Info

   When it comes to building a solid business credit profile, consistency is key. Make sure that all vendors, creditors, and credit reporting bureaus have your current business name, address, and contact information, and that this information matches what’s on your website and other online directories.

   Even a small discrepancy – like Harvey’s Hot Dogs vs. Harvey’s Inc. – could lead to your good habits not
   being properly attributed to your credit profile, or to someone else’s blunders injuring your company’s
   hard-won reputation.

Credit Where Credit’s Due

To learn more about business credit cards, lines of credit, and other small business borrowing solutions, contact your financial institution.