How Are Business and Personal Credit Connected?
You start your business on a sound footing by separating business and personal expenses, which starts to build a business credit history apart from your consumer credit score. Though distinct, the two credit profiles can still affect each other. See how both ratings are intertwined and how to protect your scores.
How Business Credit Influences Personal Credit
Your company’s credit history begins when you set your business up as an entity and create financial accounts for the firm. The age of your credit, payment history, utilization, and recent inquiries affect your score, which falls between 1 to 100.
Business scores are public info, all the more reason to work diligently to keep a high rating. Business credit cards decide whether to report your activity only to business bureaus or also to alert consumer credit bureaus. The additional account on your personal credit file affects the total utilization ratio, and a high balance could hurt your score. Likewise, on-time payments and low utilization can boost your personal score.
When applying for a business card, the lender pulls your consumer file for approval, and a hard pull temporarily lowers your personal credit score. Because you must give a personal guarantee to pay off debt, lenders need to ascertain your level of responsibility, and the best way to do so is by checking your personal credit. Only make credit requests as necessary to avoid unnecessary dings to your rating.
How Personal Credit Influences Business Credit
If lenders look at your personal credit and see your score isn’t high, you might not be approved for a loan or card. Traditional lenders prefer to see excellent scores (above 720) or at least good scores (above 660). Financial fraud kills almost any conventional financing option. It is nearly impossible to get a traditional business loan if you have a felony, a bankruptcy within the last six months, or unpaid tax liens. Vigilantly attend to personal credit so you can secure business loans when needed.
How To Find Financing If You Have Poor Credit
When conventional lenders turn you away, look to alternative lending to secure financing. Alternative lenders check for cash flow and a good business plan for loan approval. Alternative lenders rarely pull credit history and are more concerned with the state of your balance sheets, tax returns, debt ratios, and profit and loss statements.
Business and personal credit are linked to give financial institutions a well-rounded view of your reliability. By taking care of both profiles, you can open up your options for funding.