The Effects of Personal Credit on Corporate Credit

The effects of personal credit on corporate credit are far-reaching. In order to ensure financial stability, new business owners must work on both personal and business credit until their business is out of the start-up phase. Strong business and personal credit scores can open up the doors to an abundance of financial resources for your venture.

Applying for Credit

Registering a new business is an important step in building a successful company. It means you are recognized as a legal entity within your state and can apply for business licenses and taxpayer identification numbers. Though it is an exciting occasion to set up your first business, the legal formation of your company will not influence a lender. When you apply for credit, your taxpayer identification number and company information is a formality until your business credit score is established.

Personal Credit

Personal credit is used to back your business credit until the company establishes a credit history. When you apply for business accounts and loans, the application requests your personal credit information to determine your level of risk as a borrower. The higher your personal credit score, the more likely your approval for a loan or credit card. Creditors take a risk when offering financial resources to a start-up business due to the high failure rate of new companies. Bad personal credit means that you are a high risk across the board.

Establishing Business Credit

Establishing a solid business credit score takes time. First, clean up your personal credit score so that you increase your chances of gaining access to business credit resources. Apply for an account with a creditor who reports monthly to the major business credit bureaus, including Experian Business, Equifax Business and Dun & Bradstreet. Each month you make timely payments and keep your credit balances low, your business credit score increases. Business credit is measured on a scale of 0 to 100. The closer your credit score gets to 100, the stronger your business credit rating.

Considerations

Good personal credit alone cannot secure a business loan for your business, but it is a great place to start. Many lenders also assess the amount of capital you are adding to the business and your track record as a manager. Business credit card companies might also look at your annual salary to determine whether you can afford to make payments on your account until the business begins to turn a profit. Building your personal and business credit scores are a good start, but be sure you have adequate financial resources on hand to support the loan or credit you are seeking.