As a small business owner, the importance of having good personal credit can’t be overstated. That’s right; while you and your business have separate credit scores, maintaining strong personal credit can be essential to business success, especially if you’re looking for financing.
Whether you’re a small business owner or a sole proprietor, your personal credit score can be a key factor in securing financing from investors, a business loan, or getting credit from vendors. Many lenders look at your personal credit history as a measure of your ability to meet your financial obligations. Creditors may also take advantage of blended commercial scoring tools that integrate both personal and business credit to assess and predict small business risks.
While personal credit is not typically the sole factor creditors rely on as a predictor of business behavior, it’s advisable to make the effort to improve your score if you have less-than-perfect credit. Good personal credit could benefit your business in numerous ways, from allowing you to get the cell phone plan you need without putting down a deposit, to saving you money on interest and insurance.
Get a Handle on Personal Credit
Many small business owners use personal credit to run their businesses. If you are a sole proprietor, your personal credit and your business credit are closely linked in the eyes of banks and other lenders. So it’s important to monitor, evaluate, and protect your credit standing just as you would protect any other business asset.
When it comes to maintaining or improving your personal credit, keep the following basics in mind:
- Keep card balances low. Your credit utilization rate, which is the total balance divided by the card’s credit limit, is often a key factor used to calculate your credit score. Using personal credit cards for large business purchases can make this difficult, so consider limiting business spending to your business credit cards or financing big expenditures.
- Pay bills in full. In addition to saving you money on interest, this can help keep your credit utilization rate low.
- Don’t miss a payment. Your credit score tells lenders how likely you are to repay debts in a timely manner, so missed payments may lower your score significantly. Using online autopay for at least the minimum amount due can help you stay on track.
Monitor Your Credit Score
If you don’t know your credit score, you should. Business owners need to stay on top of their personal credit scores even more than the average consumer. Get in the habit of pulling your personal credit report and reviewing it to make sure it accurately represents your credit history.
There are three main personal credit reporting agencies: Equifax, Experian, and TransUnion. You can easily access your reports online at annualcreditreport.com, and you are entitled to a free report every year from each agency. This report serves as a statement to lending institutions of your ability to honor your debts, and it reflects your total available credit, the length of time you’ve had a credit profile, and the number of inquiries on your credit report.
If there are errors on your report, dispute them and work to have them corrected. For example, any tax liens that you have paid should be properly marked. Under the Fair Credit Reporting Act, the credit reporting company and the information provider (the person, company, or organization that provides information about you to a credit reporting company) are responsible for correcting inaccurate or incomplete information in your report.
Running a business is stressful enough. At Summit Financial Resources, we understand that the last thing you want is for your personal credit to negatively impact your ability to get working capital financing. Taking the necessary steps to protect this vital business asset will go along way towards helping you secure the funds you need to keep your business humming.
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Summit Financial Resources specializes in working capital financing for small to medium-sized businesses that need increased cash flow. We provide working capital financing through invoice factoring, asset-based lending, inventory lending, and equipment financing.