How Your Personal Credit Affects Your Small Business Credit Score
As a small business owner, you may think that your incorporation documents provide a clear separation between your personal credit and your small business credit score; however, that is not always the case.
In today’s post we’ll show you how your personal credit affects your small business and what you can do to improve the credit profile for both yourself and your company.
How to Establish a Small Business Credit Score
While building relationships with your vendors you should ask if they are reporting your payment history to one of the three major credit reporting agencies. If they are not, you should ask if they would be willing to do so. This is the only way to begin establishing a credit profile for your company.
Here are the type of vendors who can report of your payment history to the credit agencies:
- Leasing companies
- Other financial institutions
Try to begin establishing your business credit score as early as possible.
The Link Between Business Loans & Personal Credit
According to Experian, one of the big three credit agencies, “If you are a sole proprietor or business owner with fewer than 20 employees, your personal and business credit scores are closely linked in the eyes of banks and other lenders.”
While the Fair Credit Reporting Act (FCRA) only allows financial institutions to officially consider personal credit histories under certain circumstances, personal credit can be used as a “reference” in almost every situation if the business itself doesn’t have an established credit profile of its own.
How to Improve Your Personal Credit Score
Because many small business owners will need to use their personal credit score as a reference to obtain business financing, it’s important to make sure your personal credit is in good standing.
If your credit score is currently low, here’s what you need to do to lift it:
- Pay down your credit cards so that you’re carrying a balance of no more than 35% of your total credit limit.
- Get current and stay current on all of your bills; bring any accounts that are past due current as fast as possible.
- Negotiate with creditors about any accounts that are in collections. In many cases collection agencies will agree to remove the negative mark from your credit report if you pay them in full. Be sure to get this agreement in writing if the agency is willing to work with you.
Also remember that saving money at the expense of not paying your bills is a bad idea.
It can be tempting to save money if you really need to purchase new equipment or you want to complete a big project, but your priority needs to be on paying your current bills on time.
Business Loan Options to Consider
If your small business is in one of the following industries you could qualify for a working capital business loan through ARF Financial, even if your personal or business credit history is less than perfect:
- Medical & Dental
- Salon & Spa
Working Capital loan benefits through ARF Financial include:
- FICO score of 551 or greater with $100,000 in annual sales meets approval
- Collateral not required on loan amounts up to $725K
- Flexible terms up to 18 months
- Fixed payments and interest rate
- Interest is tax deductible
- Not linked to credit card receipts
Learn more about the approval and payback process for a working capital loan today or contact us for more info.