Don’t Let Bad Credit Hurt Your Business

If you’re running a business, then you have both a personal and business credit score. These scores play a big role in things like:

• Whether or not you can qualify for a loan

• What kind of interest rate you can secure

• How much you can borrow

• How long you have to pay off a loan

• Your financial relationships with your vendors and suppliers

If you don’t have optimal personal and/or business credit, there are some steps you may be able to take to prevent it from harming your business financially.

How to strengthen your business credit

Improving your credit is something you want to do diligently. Here are some things to consider:

1. Check your personal and business credit reports

The first step in improving your credit is knowing what your scores are. Credit monitoring is also important because mistakes can happen, and, occasionally, you may find errors on your credit reports. Sometimes, it may be fraudulent activity. Other times, it may be just an error. Regardless, it’s crucial that you have them corrected or removed in a timely manner.

Some major credit reporting agencies to check for a personal credit report are:

• Experian®

• Equifax®

• TransUnion®

Each maintains the credit files that determine your personal credit score. (All of this information is protected by the Fair Credit Reporting Act (FCRA).)

For a business credit score, consider checking with:

• FICO

• Experian

• Equifax

• Dun & Bradstreet®

2. Improve your personal credit score

Your personal credit score affects your business because many lenders are going to check it! This is especially true if you plan to apply for an SBA loan since the SBA consults the FICO® LiquidCredit® Small Business Scoring Service℠. A higher personal credit score indicates to lenders that you’re more likely to pay off your debt.

You can generally get a free credit report every 12 months from each of the three major consumer reporting companies.

What are some ways you can improve your personal credit score? As mentioned, check it for errors so that you can address them. Aside from that, pay your bills on time every month, and make sure you’re in good standing with any current loans.

You also want to consider using your credit cards wisely by not opening too many in a short period of time, avoiding closing accounts, and keeping your balances low. This generally helps keep your credit utilization rate low, which can often help your overall credit score.

3. Separate your personal and business finances

Because these two scores can influence each other, you want to keep them separate as best you can. That way, if one is negatively impacted, the other likely won’t suffer as a by-product. Here are a few tips to keep in mind:

• Consider registering your business as its own separate entity, like an LLC or an S-corp. This gives you an employer identification number (EIN) for filing your business taxes, and generally limits your personal liability. In other words, if your business is in trouble, you likely won’t personally be as vulnerable since you and the business are two separate entities.

• Consider using your EIN to open a company bank account. Use this account—and not your personal one—to manage your business’s finances. In general, you want to avoid using your personal information as much as possible.

• Consider working on building up your business credit score specifically. This may put you in better standing with the people you work with.

4. Get a line of credit from your suppliers and vendors

If your business credit isn’t looking too good, getting a line of credit from a financial institution might not be feasible quite yet. What you can consider doing instead is getting a line of credit from your suppliers and vendors that report to the agencies. If you make these payments on time, you’ll likely build up a positive credit history, which may boost your business credit score.

5. Use the right cards

There are specific business credit cards for bad credit that you may want to consider if your credit score is low. Some of the benefits are:

• Separating business expenses from personal expenses

• Building up your credit score (as long as you consistently make timely payments)

Bad credit doesn’t have to hinder your business

We all start somewhere. If your credit is struggling, consider taking action as soon as possible.

1. Check your credit individual and business credit reports

2. Work on boosting your personal credit score

3. Keep your personal and business finances separate

4. Work with your suppliers and vendors to secure a line of credit

5. Use the right credit cards based on your credit

Rome wasn’t built in a day and neither is credit. It may take weeks, or even months, to see improvements to your credit once you start changing certain behaviors. Be diligent and consistent - your business will thank you for it. minutes to edit your post.