Why Personal Credit Matters For A Business Owner

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Anybody out there will be able to tell you that your personal credit rating will have an enormous impact on deals when it comes to loans and other sources of funding.

However, there are very few people out there who seem to realize that personal credit could have a massive impact on your business. 

If you are a small business owner, or somebody looking to borrow for a much larger business, this information is going to be extremely useful to you.
Business and Personal Credit Scores

It is worth noting that there will still be personal and business credit scores.

They will be separate and will be considered separately by the organization that is planning on lending you cash.

However, if you are the sole owner of a business, or a new entrepreneur, your personal credit score will also be considered.

In fact, if you are new, your business may not even have a credit score yet.

This means the personal credit score is the only thing that can be relied on.

Many companies who lend will use something known as Intelliscore Plus Credit Score from Experian (one of the largest credit scoring companies in the world).

It looks at a blend of both your personal and business credit scores.
How is your credit score calculated?

It will be different depending on the credit rating agency that is used.

Typically, however, the following will be considered:

  • Payment History e.g. whether you make payments on time.
  • Frequency: if your account is frequently sent to collections, then the chances of you receiving a high credit rating are low. It will also look at how often you make payments on time.
  • How much credit you are currently utilizing.

This is a rough guide on how important everything is when it comes to your credit report:

Why Personal Credit Matters For A Business Owner 1

Change in Potential Interest Rates

Now, before we dive into how to improve your credit score and why is it needed for your business, it is probably worth taking a look at this chart.

As you can see from this graph, if you work hard to improve your credit score, you can save hundreds of thousands of dollars over your lifetime.

Of course, this is related to personal expenses, but the same theory would apply to business expenses too.

A healthy credit score will help your business grow.

Why Personal Credit Matters For A Business Owner 2
Why boost your credit score?

Well, the main reason for boosting your credit score is that it will enable you to achieve lower interest rates.

This is brilliant for a small business, or any business for that matter, which is looking to keep expenses to a minimum.

Here are some of the ways in which you can benefit:

  • Hire agreements on equipment which require lower deposits.
  • Business credit cards having lower interest rates and higher credit limits.
  • Huge savings on loans for your business.

How to boost your credit score

According to Credit Karma, there are numerous different methods that you can use to improve your credit score.

On this page, we will take a look at some of the simplest methods that you can put into practice.
Credit Utilization Rate

Lenders want to see that you have a low credit utilization rate, but a high amount of credit at your disposal.

Take a look at this chart.

As you can see, the less credit you use, the higher your credit score is going to be (high is good!)

Why Personal Credit Matters For A Business Owner 3

Pay Your Credit Card Bills to the Max

Why Personal Credit Matters For A Business Owner

Never miss a payment

Never miss a payment on any loan or other forms of credit that you have.

Remember, lenders want to know that they are going to get their money back.

If you consistently miss payments, you are not giving them that guarantee.
Review your credit report

Always keep an eye on your credit report.

If there are any errors, report them immediately so they can be corrected.

The best way to do it is to get in touch with the company that provides you with credit.

Keep an eye out and make sure it is updated!
Conclusion

If you operate a small business, then you need to have a good personal credit score.

Do not even think about applying for any kind of business loan unless you can be 100% sure that your credit score is perfect, or as perfect as it is ever going to get.

If you do, you may be costing yourself thousands of dollars in the long run.