What small business owners need to know about credit


San Jose, California, June 2, 2021 /PRNewswire/ – Many small business owners take advantage of their personal credit when they first start a business or during an economic downturn. However, your business can also have its own-completely independent-credit file. Building business credit can help you save money and grow your company. But for many small business owners, personal credit is still a major factor in corporate financing qualifications.

For more loans and credit education, please visit myFICO’s blog at https://www.myfico.com/credit-education/blog

The difference between personal credit and corporate credit

Your personal credit depends on the credit reports of major consumers Credit Bureau — Equifax, Experian and TransUnion. Your creditors, such as lenders and credit card issuers, will report your account information to the credit bureau. So, your FICO® The score is based on Those credit reports.

Similarly, once a business is established as a limited liability company (LLC) or company, it can also establish its own commercial credit file. Commercial credit reports are managed by Dun & Bradstreet (D&B), Equifax and Experian-the latter two have independent consumer and commercial credit databases.

Creditors and suppliers of enterprises can report their accounts and payments to the Enterprise Credit Bureau, which can create enterprise credit reports. There are also commercial credit scores, such as FICO® Small Business Scoring Service℠ (FICO SBSS), creditors can use it to assess the credibility of the company.

Different from consumer FICO® The FICO SBSS score ranges from 300 to 850, and the score ranges from 0 to 300. Many small business lenders use it to evaluate other types of corporate financing applications.

How commercial credit helps business owners

Establishing and establishing a company’s commercial credit can help the company:

  • Get more favorable business loans and credit lines
  • Get lower commercial insurance rates
  • Obtain longer terms from suppliers and suppliers
  • Eligibility for government and corporate contracts
  • Raise funds from investors

In short, a good business credit score can help you save money, stabilize cash flow and grow your business.

In some cases, your company’s financial statements and history with suppliers or partners may be more important than its commercial credit score. But in the long run, establishing a good commercial credit score can still help you.

Why your personal credit is still important

Over time, some companies have developed to the point where creditors only provide loans or credit lines to them based on their financial and creditworthiness. However, for most small businesses, this is not the case.

Although a strong commercial credit profile helps to obtain better financing, you should know:

  • Many lenders still check the personal credit of all business owners
  • There may be minimum spending FICO® Score requirements for all business owners
  • Some commercial credit scores include the owner’s personal credit

Even if your business is eligible to obtain a loan without a personal credit check, you may still need to sign a personal guarantee. A guarantee means that if the business is unable to pay, you are personally responsible for the debt.

Separate your business and personal finances

As a small business owner, the success of your business may be closely related to your personal financial situation. However, it is important to separate your business finances from your personal finances.

For example, if you use a personal credit card to pay for business expenses, you may have High utilization This will hurt your personal FICO® fraction. Therefore, even for personal use, you may not qualify for a credit card or loan or obtain a lower preferential interest rate. Having a commercial credit card or commercial credit line that does not report to the Consumer Credit Bureau may be a better choice.

Similarities between your business and personal credit

Your corporate and personal credit reports are completely independent, but the process has some similarities. This is a quick overview.

Commercial credit

  • Establish a business structure (such as a limited liability company or company)
  • Register your business with D&B
  • Open credit and term accounts that report to the Commercial Credit Bureau
  • Loan repayment on time
  • Make net periodic payments on time or in advance

Personal credit

  • Have a credit card or loan reported to the Consumer Credit Bureau
  • Pay on time
  • Use only a small portion of available credit for revolving accounts

Both commercial and personal credit scores try to predict the likelihood that the borrower will not be able to repay in the future. With this in mind, the history of payments on time is important.

After you fully understand why business and personal credit are important to small business owners, you can continue to research online.If you want to know more about Personal credit, The consumer credit resources of myFICO.com can help.

About myFICO
myFICO easily understand your credit through FICO® Scores, credit reports and alerts from all 3 bureaus. myFICO is the consumer department of FICO-get your FICO score from the person who makes the FICO score.For more information, please visit https://www.myfico.com.

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