A personal credit score is a three-digit number that helps creditors determine your level of risk as a borrower. When you start a business, your individual score may be used in place of corporate credit. Corporate credit measures how well your business manages its credit accounts. Starting a business with a bad personal credit score can prevent you from opportunities to raise your corporate credit score.
Expanding Your Resources
Having a good personal credit score means increased access to capital when you start your business. For example, when applying to receive business loan from a bank, your personal credit score must be strong to qualify. Banks look for low-risk investments and will not make a business loan to a new entrepreneur with bad credit. Additionally, business credit cards become more accessible when you have good personal credit. When you apply for a business credit card and have no business credit, your personal credit score is used to determine whether you qualify. To expand your business credit score, you must know how it functions.
What is Corporate Credit?
Business credit is measured on a scale of 0 to 100. The higher your credit score, the lower your risk as a borrower. For certain creditors, your company's credit activity is reported to the business credit bureaus monthly, including Equifax Business, Dun & Bradstreet and Experian Business. Having a business loan or credit card is the best way to ensure your credit activity is reported to the major credit bureaus. A good business credit score opens the door to a wealth of financial resources.
Updating Your Credit
Your business credit accounts are linked to your personal credit score until you establish business credit. Each month you maintain a positive account history with your business creditors, it is reported to both the business and personal credit bureaus. Over time, your score will raise and you can detach your personal credit information from your business accounts. This protects you from damaging your personal credit score in the event the business suffers a financial loss.
Considerations
The effects of bad personal credit are far-reaching. Starting a new business may prove impossible with reliance on outside financial resources if your credit is poor. For example, bad credit makes it difficult to be approved for business credit accounts, which means you are unable to build your business credit score. A high business credit score is essential for fast-growth companies as they often need access to large amounts of capital in short time frames. A poor credit score cripples the success of a fast-growing business. Strong business or personal credit is essential in the financial stability of your venture.
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