By William J. Lynott

Credit plays an important part in business. Used wisely, it can be a profitable friend. Used carelessly, it can be a destructive enemy. Here are nine ways to help you put credit to work for you and your business.

Be aware of your credit report. If your credit score is “good,” it will be easy for you to get credit when you need it. If your score is “bad,” you may find it impossible to get credit from anyone.

To learn more about how your credit score is calculated, see the Federal Trade Commission’s information site.

Improve your credit score. You can improve your score by:

• Paying your bills on time. This is the smart way to handle credit. Late or missed payments are a sure way to lower your score and incur hefty late fees and finance charges.
• Avoiding closing out an account and transferring the balance to another credit card. This can hurt more than it can help. Each time you close an account, you lower your overall credit limit. Thus, your existing debt becomes a larger percentage of your credit limit.

Avoid the minimum payment trap. If you make only minimum payments on a significant balance, it can take years, and sometimes decades, to pay off the full debt. Once you fall into the “minimum payment trap,” it can be difficult, if not impossible, to dig your way out.

Don’t cancel unused credit card accounts all at once. If you have a number of business credit card accounts but use only a few of them, it’s best to close out the unused ones. However, be sure to keep the cards that you’ve had the longest and cancel the newest cards. The credit reporting agencies like to see a long record of prompt payments. Too many new cards will tend to lower your credit score.

Think twice before opening new credit card accounts or credit lines. If you and your business don’t already have a long and favorable credit history, opening a new credit line will tend to lower your score. New accounts lower the average age of your accounts. That, in turn, affects your credit score.

Consolidating credit card balances is not a cure. Debt consolidation may sound like an easy cure, but many business owners have discovered that so-called debt consolidation led them down the road to an even more burdensome debt load.

Eliminate pre-approved credit card offers from your mailbox. Those pre-approved credit offers that find their way into your mailbox represent a temptation for identity thieves who might try to open new credit accounts in the name of your business.

You can opt-out by visiting the official Credit Reporting Industry website or by calling 888 567 8688 to opt-out via telephone.

Be aware of the differences between debit cards and credit cards. While there are many similarities between debit and credit cards, the differences can significantly affect the cash flow in your business.

While you get protection from liability due to fraud on both credit card and debit card purchases, debit cards do not offer the same protection as credit cards in the case of defective or unsatisfactory merchandise. With credit cards, you may dispute errors or unauthorized charges and withhold payment until the matter is resolved. This allows you to use the money while the credit card issuer investigates the circumstances. With a debit card, your money is irrevocably spent the moment you complete the transaction.

If you pay off your invoices and credit card balances in full each month, the last thing you need is a debit card. You’re now enjoying up to 30 days of free use of someone else’s money. This is “using the float,” the period between the purchase date and when the money is actually withdrawn from your account. In this case, you should congratulate yourself on your financial acumen and hang on to those credit cards.

Never co-mingle business and personal funds. Not only is mixing your business and personal finances together an open invitation to problems with the Internal Revenue Service, it complicates your record-keeping and cash-flow management. You should maintain separate business bank accounts and make all of your business credit purchases on separate accounts.

Some experts compare unwise use of credit to use of drugs: It can offer short-term pleasure in exchange for long-term pain. Once the credit monster gets his hooks in you, it can be painfully difficult—and sometimes impossible—to free yourself.

However, credit in itself is not harmful. Used skillfully it can be a profitable tool for managing your business affairs. Use these tips to help make credit one of your business assets, not one of your liabilities.

William J. Lynott is a veteran freelance writer who specializes in business management and personal and business finance. His work appears regularly in leading trade publications, newspapers and consumer magazines.