Leveraging your personal credit scores to secure business credit is a judicious move for entrepreneurs and small business owners. A strong personal credit history can be helpful in obtaining business financing, especially for new ventures lacking a business credit history.
Reference Sheet
This reference sheet provides a concise guide to using personal credit scores effectively for business credit purposes.
1. Understanding Personal Credit Scores
1. Know Your Score: The first step is to familiarize yourself with your personal credit score. The main credit bureaus (Equifax, Experian, and TransUnion) provide these scores, reflecting your creditworthiness based on past borrowing and repayment history.
2. Score Range: Personal credit scores generally range from 300 to 850 or in some cases 300 to 900. A score above 670 is considered good; above 740 is very good; and above 800 is excellent.
3. Improve Your Score:
If your score is already good or excellent, you do not need to worry. If your score is not that good, then you will need to take steps to improve it before applying for business credit. This can include paying down existing debt, making timely payments, and correcting any inaccuracies on your credit report.
2. Preparing to Apply for Business Credit
1. Documentation: Gather financial documents that lenders may require, such as past years' tax returns, bank statements, and a detailed business plan. This preparation demonstrates your credibility and seriousness.
2. Lender Research: This phase involves identifying lenders who consider personal credit scores for business credit applications. Some lenders may be more favorable to startups and small businesses, especially those without established business credit.
3. Understand Terms: Familiarize yourself with the terms of any credit offer, including interest rates, any fees associated with the credit line or loan, and repayment terms.
3. Applying for Business Credit
1. Choose the Right Product: Decide whether a business credit card, line of credit, or loan best suits your needs. Each product has different advantages and requirements. Do consider that credit cards may have a higher interest rate compared to other instruments.
2. Apply Wisely: When applying, please ensure that your application is thorough and accurate. It is important because omissions or mistakes might delay the process or even result in a denial.
3. Use Personal Credit as Leverage: In your application, highlight your personal credit score as a testament to your reliability and ability to repay. This is particularly important for new businesses without a credit history.
4. Building Business Credit
1. Responsible Use: Once you obtain business credit, use it responsibly. It is very important to make timely payments and avoid maxing out the credit limits you have so that your credit score remains high.
2. Monitor Credit: Regularly check your business credit report to ensure it accurately reflects your credit activity. Dispute any inaccuracies promptly.
3. Graduate to Business Credit: As your business grows, continue to apply for additional business credit products and limit the use of personal credit for business expenses. This helps to build your business credit history independently.
Additional Resource
For more information on improving your credit management skills, consider the Credit-Lit Monthly Planner. Developed by Dionne Perry, a Board Certified Credit Consultant, this comprehensive tool is designed to enhance credit literacy and management. The planner offers practical advice, strategies, and tips to navigate the complexities of credit, making it an invaluable resource for anyone looking to bolster their financial acumen.
Conclusion
Utilizing personal credit scores for securing business credit is a practical strategy for entrepreneurs and small business owners. By understanding how personal credit works, preparing thoroughly for the application process, choosing the right credit products, and responsibly managing both personal and business credit, business owners can successfully leverage their personal creditworthiness to grow and thrive in their businesses.
