When you want to borrow money, either for personal or business use, your credit score is one of the keys to qualifying. The better the credit score, the more likely you are to qualify for the financing you need at lower interest rates and more favorable terms. But small business owners need to know that their business credit can affect their personal credit.
Business Credit vs. Personal Credit
In some ways, business credit can affect personal credit. First, if you personally guarantee a business loan, you become responsible for the debt. This means that if the business defaults on the loan, your personal credit score can suffer. Similarly, if the business loan is reported to the credit bureaus, the loan amount and repayment status become part of your personal credit report, influencing your personal credit utilization ratio and overall credit profile. Second, when you apply for a business credit card, the issuer may perform a hard inquiry on your credit report, which can lower your personal credit score. High business credit card balances and missed payments can affect both your business and personal credit scores.
Your business and personal credit profiles, when well-maintained, can work together to improve your financing options. Many small business lenders check both business and personal credit for small business and SBA loans. And most small business credit card issuers will check both your personal and business credit scores.
Why It’s Important to Build Your Business Credit Score
Credit is a powerful tool for business. However, it is important to maintain a clear distinction between business credit and personal credit to help protect your personal credit score.
A strong business credit score gives your business easier access to business financing options. Financing can serve as a catalyst for growth, enabling businesses to seize opportunities that might be otherwise out of reach. Business financing can enable an enterprise to hire new employees, invest in training and development, and provide incentives for recruiting and retention. Financing can help a business increase its marketing and advertising to increase revenues. Increased funding can help enhance worker productivity and efficiency through investments in new equipment and technology. A higher credit score can contribute to higher credit limits, thus providing greater financial flexibility. It contributes to more favorable supplier terms and lower insurance premiums. And, it builds the levels of trust in a business.
Ways to Improve Your Business Credit Score
- Use credit wisely and consistently pay your business debts on time.
- Reduce your business debt. Most credit bureaus recommend that you keep your business debt below 20 to 30 percent of your total business credit limit.
- Get more available business credit. The more credit you have that isn’t being used, the better your credit score will be.
- Proactively work to have your vendors report your credit history to the credit bureaus.
- Check your credit score frequently for errors.
Seek Expert Business Financing Assistance
Contact CAB Capital, based in Mt. Pleasant, SC. We offer small businesses custom-matched financing solutions that can be faster or more flexible than other financing solutions. We have access to a vast suite of more than 150 products from a group of 67 different lenders, so we can ensure you get the funds and the terms you are looking for.