Building personal credit is important for your business. Many people think that the two are separate and that your credit does not affect your business, but it’s more important than you think, especially if you’re a start-up.
Why?
As we all know, in the small business world, many owners abuse their credit to grow their business, and this is mainly because they don’t know or don’t have any other way to get the financial resources to move forward. According to an Addy and Mark internal client study, start-up and small business owners with a personal credit score under 680, using the MY FICO model, struggled to get loan approvals.
Even though business credit and personal credit are separate, they are consistently related, whether underwriters want to admit it or not. You don’t always have to use personal credit to guarantee business credit, and sometimes you may not have to use it at all. You can also work on building your business credit first, so you don’t have to use personal credit. However, the pro to having good personal credit is that it can assist with improving business credit approvals, with higher amounts. National Business Capital, a company that provides a variety of small business loan options, gives an in-depth explanation of the benefits of good personal credit for your business.
Why can’t I just build credit under my business only? Do I truly need to use my personal credit?
As stated, it is true that you do not have to guarantee credit for business personally. This route would indeed be ideal, but it’s simply not a reality for most start-ups. Due to constant changes in underwriting processes and loan requirements, getting approved without a personal guarantee can prove very difficult. Take note; we didn’t say it’s not possible, it just takes time. You will find tons of youtube videos and promotions telling you differently and then when you open the box, you will see that there are truly no magic wands or solid quick options. Also, it doesn’t hurt to strengthen your personal credit, it will only support you throughout your business journey.
Let’s take a look at a few things you need to take note of on the personal side as you develop your new business.
1. Do you know your credit score from the 3 major Bureaus (there are more than 3, but let’s start here)? Knowing your Equifax, Experian, and Trans Union scores and monitoring them will keep you ahead of the game.
According to Investopedia, the following factors contribute to a higher personal credit score:
- Making payments on time
- Lower balances on your credit card
- A mix of different credit cards and loan accounts
- Minimal inquiries for new credit
2. If your credit score is not within the ideal range for good approval and good interest rates, do you know the reason?
3. Do you have a solution to address the reason, or do you need help with that?
4. Do you have a timeline in which you’d like to address the issues that are lowering your credit score?
5. If you do not have any of the above concerns, do you know the best options for credit portfolio and score?
Overall, you ought to take care of yourself as you are taking care of your business. A healthy business needs a healthy owner.
Also, check out NAV if you are looking for a reliable business credit monitoring platform. It’s one of our best-trusted partners.
To learn more about how personal credit affects business, subscribe to Cerebral Dope for the upcoming info session by Addy & Mark.
Finally, don’t forget more micro business tips, reads, and grant opportunities are available on our blog. Check it out!
Writer: Nikki Vlahakis , Editor: Idee Strong, SEO: Jesus Navarro.
Disclaimer: This resource is for information purposes only. The company is not directly related to The Dope Million in any way. Always check your resources’ original website for updated information.