4 Things Hurting Your Credit Score (And Why You Need to Know This)

The twenty-sixth mile. Perfect sprinkles on a birthday cupcake. A walk down the red carpet to collect an Oscar. The peak of Mount Everest. A perfect credit score.

Of all the things the universal “we” aspire to, a perfect credit score ranks right up there. And as with other aspirations, people hire coaches and experts to help them get there. But like too much exercise or overdoing it on sweets, can you also be inadvertently hurting your credit score?

The answer is yes. Here are four things that can hurt your credit without you even knowing it. Keep your financial health at its peak by avoiding these common credit mistakes, and get closer to that perfect credit score.

1. Taking your eye off the ball. With the hundreds of tasks to do and decisions a small business owner has to make in a day, adding anything that seems optional can quickly slip down the list. This is why many business owners only check their credit when they need to take out a loan. However, watching your credit on a regular basis can actually save you time, and taking your eye off the ball is a dangerous proposition in any game.

You can easily automate this function by setting up alerts through free business credit monitoring tools. These tools will monitor things for you and ping you when there are changes. Credit scores typically stay pretty constant, so getting pinged the moment something like a significant drop occurs can alert you to something serious like identity theft right away. Having access to this information instantly is much better than finding out months afterward, when the damage has been done and it is more difficult to recover.

2. Assuming accuracy. Business credit report errors happen more often than you might imagine. A Wall Street Journal survey showed that 25 percent of small business owners who viewed their reports found credit damaging errors.

Mistakes such as outdated revenue figures or an incorrect industry classification code (SIC)–which are easy to correct–can damage your credit. For example, being coded as a “real-estate investment” company carries a higher credit risk, so an inaccurate label matters. These kinds of errors could be damaging to your business credit scores without you even knowing it.

Mismatched business profiles are another common problem, and it's not hard to understand how this happens. Unlike consumer credit reports, which require four pieces of very unique data like your social security number and date of birth, your business credit report only uses your business name and address–and the bureaus don't require that the data be exact. This makes business credit reports rife for mistakes. For example, if your DBA is close or the same as another, this can cause an easy mix-up.

Take 30 minutes to review your reports from the three main business credit bureaus (Dun & Bradstreet, Experian, and Equifax) to ensure that your information is correct. This half-hour investment on a regular basis can save you big headaches later.

3. Paying your bills on 'island time.' “Island time” is a great concept when you're on vacation; however, when it comes to business credit, paying bills even a little late can cause a bigger problem than you might think.

Business credit works differently than personal credit. With personal credit, you get 30 days to pay your bills before they're considered late and ding your credit score. With business credit, paying even one day late is considered “late” and can result in a drop in your credit score.

Let's say that your coffee and doughnut vendor offers you net 15 terms, giving you 15 days to make your payment for the caffeine and sweets they delivered last week. If you pay-or they receive your payment-on day 16, they can report you for paying beyond terms, which will hurt your score.

Dun & Bradstreet's Paydex score ranges from 0 to 100, and is based solely on your payment history. This is the primary score used by vendors to determine the creditworthiness of your business; the higher the score, the better for you.

If you pay all your business bills exactly on the date they are due, you would earn a Paydex of 80. To get an even higher score, you'd have to pay in full before the due date.

4. Relying solely on personal credit. It's next to impossible to grow a business on personal credit alone. Yet for many entrepreneurs starting out, leveraging personal funds and credit cards is a common first step.

Unfortunately, this strategy can lead to overreliance and maxing out personal credit cards which can hurt your personal credit. In addition, it does nothing to nurture your business credit for the future. Having an anemic business credit file can be just as harmful as having poor credit.

Even though you may not qualify for a big credit line at first, it's important to open a business credit card when you're just starting out. This will help you build business credit, which will let you secure more capital over time. On average, a company uses credit at 10 times the rate of a consumer, and can usually access 10 to 100 times more credit. At some point, you may need this capacity, so it's a good idea to start as soon as possible.

Play the business credit game like a champion, and don't fall for rookie credit mistakes. Working to avoid these common pitfalls, rather than ignoring them and having to fix your broken credit after the fact, will save you a great deal of time and effort in the long run by ensuring your business credit score is always in peak condition.

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