Your personal credit is the score you develop over time by maintaining responsible spending habits and meeting your financial obligations on time. Personal credit scores can range from 300 to 850 with creditors looking to see a minimum of 680 when considering offering you credit. A business credit score or commercial credit score, on the other hand, is the figure that indicates whether or not your company is a good channel to invest in or to do business with. These scores can range from 0 to 100 with 75 being considered an excellent rating.
As the sole owner of your enterprise, your personal score is closely connected with your business score and potential lenders are likely to make use of blended scoring tools to gauge your company’s creditworthiness. This is why; it is essential that you regularly assess both scores and take steps to maintain them.
When setting up your business, you’ll invest your personal capital into it. However, as it grows and needs more investment, you’ll look to banks and other creditors. To ensure the long-term growth and success of your small undertaking, one of the first steps you can take is to establish it as a distinct entity. By separating your personal credit from the business credit, you’re empowering it to create its own financial standing. And, a good score convinces loan providers that your enterprise is a viable investment.
Aside from raising finances easily, separating your personal and business identity is essential for a number of factors.
Check with your attorney, or town or state rules and regulations that will direct you on how to create a separate identity for your enterprise. Once it has its identity, you can begin building its creditworthiness. Typically, these are the steps you can take:
When developing your business credit scores, you must first understand how the different credit bureaus calculate scores and the criteria they choose. Conduct your operations by keeping these factors in mind and you should be able to build a good score. These determining factors can include:
While conducting business, keep watch on your personal scores also. Remember that under special circumstances, the Fair Credit Reporting Act allows creditors to check the personal credit history of the company owner when assessing whether or not to offer small business loans and credit. Further, most banks and lenders may decline credit to enterprises whose owners have a FICO score of 640 or less. This is because owners facing financial issues in their personal life are very likely to project those issues into their business also.
If you have low credit scores and don’t qualify for conventional forms of credit, you can make use of other sources of funds. By using and managing them responsibly, you can raise your company’s scores. For instance, look for funds from friends and families or peer-to-peer lending portals. You could try to get business-to-business, equipment or accounts receivables financing to raise the capital you need. Only ensure that you meet your commitments, so you creditors are encouraged to send favorable reports to the credit reporting agencies.
Thus, having a strong personal and business credit can be highly advantageous for the future growth of your company.