What is ‘Bad Credit’?
Failing to pay credit card bills, loans, mortgages, or utilities results in your actions being reported to the major credit bureaus. This ultimately lowers your credit score, which is used by lenders to determine your risk of defaulting on a loan.
A low credit score may make it difficult to qualify for loans or credit cards and may also result in higher interest rates.
Just as an individual can accrue bad credit, so too can a company. Business credit works similarly to personal credit. When businesses don't pay their bills on time, they receive lower credit scores.
There are a number of factors that contribute to bad credit, including:
- Length of credit history: This refers to how long you have been using credit. The longer your history, the better.
- Payment history: This is a record of whether or not you have made your payments on time.
- Credit utilization: This is the amount of credit you are using compared to the amount of credit you have available. It is recommended to keep your credit utilization below 30%.-
- Inquiries: When you apply for credit, an inquiry is made on your credit report. Too many inquiries can lower your credit score.
- Payment History: Every payment you make on your credit lines, whether on time or late, is recorded and reported to the credit bureaus. Payment history is one of the most important factors in determining your credit score.
- Total Accounts: Credit bureaus like to see multiple lines of credit to show your creditworthiness. This could be in the form of credit cards, loans, or even utility bills. The more accounts you have, the more positive results you'll receive.
1. Bank of America Business Advantage Unlimited Cash Rewards Mastercard - 4/5 Stars
While the Bank of American advantage Unlimited Cash Rewards Mastercard offers similar benefits as some of the other credit cards in its class, it's perfect for existing customers.
- Unlimited 1.5% cash back on all purchases
- No annual fee
- 0% intro APR on purchases within the first nine months
The unlimited 1.5% cash back on all purchases with no annual cap adds an extra incentive for customers who don't already have a reward card. You'll also get a 0% introductory APR on any purchase within the first nine billing cycles of using the card, so your business can make large upfront purchases without having to worry about gained interest.
2. OpenSky Secured Visa Credit Card - 3.7/5 Stars
While not technically a business credit card, OpenSky Visa is great for business owners with bad credit because the company doesn't require a credit check for approval.
- No credit check required for approval
- Credit line increase is considered after six months
- Reports to all three major credit bureaus
The OpenSky is a secured card, which means you'll have to put down a deposit that is equal to your line of credit. The card is a perfect opportunity to raise your credit score while simultaneously teaching you better budget management skills.
3. Credit One Bank Platinum Visa - 3.5/5 Stars
Like OpenSky, business owners can help build their credit with the Credit One Bank Platinum Visa card. It doesn't require any upfront security deposit, and cardholders can earn 1% cash back on eligible purchases.
- 1% cash back on eligible purchases like mobile phone service, internet service, gas, and groceries
- No upfront security deposit
- Lower annual fee for the first year
Although the card might appear perfect on paper, there are several fees that make this card less valuable than the ones mentioned above. An annual fee of $99 is charged every year, a variable APR interest rate of 24.24% is applied to all unpaid balances, late fees, foreign transaction fees, and a $39 returned payment fee are all part of the service.
Fastest Ways to Rebuild Your Business Credit
Consistently making payments is the fastest way to rebuild your credit. More than likely, falling behind on your bills is the reason you have a lower credit rating to begin with.
Paying off your balances in full every month will help show your trustworthiness to creditors and help you avoid any high-interest rate charges. A missed payment has the ability to stay on your credit for several years and will negatively affect your ability to get future loans or better credit cards.
Once you establish good payment habits you should ask your card company to either raise your credit limit or upgrade you to a better card. Raising your limit will help with your credit card utilization.
Utilization is a term that determines how much of your credit limit you are actually using. For example, if you have a credit limit of $1,000 and currently have spent $500 on your card, you have a utilization of 50%.
Credit bureaus like to see your utilization lower than 30% so asking your company to raise your limit may actually help lower your overall credit score.
When applying for a credit card, it helps to only apply for the card you feel you have the best chance for. If you attempt to apply for a card above your current credit rating, there is a high likelihood you will be denied and receive a hard inquiry on your credit history.
An inquiry is placed on your history anytime a credit company performs a credit check before approval. Even though an inquiry is necessary to get a credit card, it still has a negative effect on your overall credit score.
Hard inquiries take a total of 2 years to drop off your credit history. Limiting your applications to one or two cards you believe you have the best chance of getting approved will help you maintain a higher credit score in the future.
Which Business Credit Card Should You Use?
The Bank of American advantage Unlimited Cash Rewards Mastercard is going to be best for businesses looking to build their business credit while earning cash back.