No merchant wants to end up on the Terminated Merchant File list (TMF list). Merchants that have failed ventures or credit troubles can find themselves on this list and unable to open merchant accounts or get loans at banks. The chances for a bad credit merchant account with instant approval are few and far between. The best medicine for your business, and your credit score, is preventative. Here are four possible ways your credit score can tank through your business leading you in dire straits.
1. Monitor Your Credit Balances
A key factor in your credit score is your credit utilization. Credit utilization is the total of how much you owe on your credit lines divided by the total credit limit of those credit lines. So if your business owes $25,000 on $100,000 of credit your credit utilization score is 25%. The secret to keeping your credit score good through credit utilization is to never exceed 30%. If your business exceeds 30% than your credit score will show signs of suffering.
2. Resist the Temptation to Close Accounts
What? Sound counter-intuitive? This is actually an easy tip to improve your credit score. When you pay off completely a credit account then your credit score gains a boost. If you close the account after paying it off, you lose that boost. Leave the accounts open to gain the benefit of having paid your bills.
3. Do Not Apply for Too Much Credit
Businesses that have a good credit score are in danger of losing that credit score simply through volume. If you’re savvy you may be able to take advantage of the good offers that can benefit your business. But even a 0% credit card or a bonus rewards car will incur a credit inquiry—which accounts for 10% of your overall credit score. Too many inquiries will damage your score.
4. Monitor Your Credit Score!
Simply by maintaining active monitoring of your credit score you can track the impact your business practices are having on your score. A good rule of thumb is to watch for any drop of 25-30 points. A drop of 25-30 points is significant and can indicate, for example, that your credit utilization ratio is getting too high. What you don’t know can and often will hurt you—especially when if it’s your credit score.
Credit can be a challenge for an individual and for a business. Too often we are inundated with information, offers, and updates about our lines of credit. The important thing is to maintain a good credit score to help keep your business above water. The lower your credit score gets, the harder it becomes to operate a business and merchant account with bad credit. These four easy tips are good ways to keep your credit score happy and healthy.