How does opening multiple credit cards at once affect my business credit score?
When you’re launching a business, you may need to open credit cards in order to afford all of your necessary expenses. Opening multiple credit cards is a good opportunity to get access to the money you need. However, opening multiple credit cards at once can also have a negative impact on your business–including on your credit score. Here’s how opening multiple credit cards at once can affect your business credit score.
What to Know About Business Credit Cards
Business credit cards are a great way to start building credit as a business. If you open multiple business credit cards at once, you may experience high-interest rates on some of the cards. This is because credit card companies tend to charge higher interest rates on candidates they see as less financially qualified.
When Multiple Business Credit Cards Can Help Your Business
When you get multiple business credit cards, you don’t only have access to more credit. You also improve your debt-to-credit ratio(if you’re able to not use the credit cards right away). This is a factor that is considered when calculating your business credit score, and your score can improve or increase greatly if you keep your debt-to-credit ratio low.
When Multiple Business Credit Cards Can Hurt Your Business
When you open a business credit card, your credit card company will put forth repayment terms that you agree to in your contract. You must hold to those terms, or you’ll be considered to have breached the contract. When you don’t repay your credit card company as agreed, the credit card company can report that to the business credit bureaus, which will negatively impact your business credit score.
Multiple business credit cards can also be challenging because you have less direct control over each card–especially if you have employees who can use the cards. Having multiple cards increases the chances one will be misused or fraudulently used.
Finally, multiple business credits cards can cause trouble because business owners must personally guarantee the debt, and if there are high balances on many cards, that’s a lot of money a business owner would end up being personally responsible for should you not be able to repay debts at any point.
Why a Low Business Credit Score Matters
When you have a good business credit score, you can build more business relationships. Companies can look at another company’s commercial credit score-0;”> in order to decide whether they want to do business together. If your score is low, you may turn potential business partners away, which can ultimately limit your opportunities and growth.
Alternatives to Multiple Business Credit Cards
A good option that you can take advantage of instead of opening multiple business credit cards is factoring. Factoring happens with a third-party company (or a factor) “buys” another business’ accounts receivable and then gives the company cash in exchange. This is a process that can help you maintain cash flow without having any negative impact on your business credit score.