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| Why Business Credit Is a Much Better Asset than a 700 Credit Score |
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If you are a business owner, you need to learn why business credit is a much better asset than a 700 credit score on your personal credit history. If you do not know the answer to this question, then your business loans and business credit card accounts may be ruining your personal credit history. Business owners need to learn to differentiate between personal and business credit and how to use each effectively.
Having a 700 credit score can open some doors for your business. However, no matter how good your credit score is, there are limits as to the amount that banks will lend you with just your personal guarantee. Even the top 10 loan options are going to have limited amounts. When you are looking to finance a business idea, you may end up needing thousands of dollars. Needing business loans for more than $100,000 is not uncommon, but being approved for this type of loan with only your personal guarantee to back it is not likely to happen.
If you do need to get this type of loan and only have your personal credit score to back it, you will likely need to put something up as collateral for the loan. Your home, for instance, could be used to back this type of loan. But then what happens if your business idea does not work as planned? If you cannot make the payments on your business loan that has your home collateral, you risk losing your home.
So you now know why personal credit is not the best way to fund your business, but you don’t know why business credit is a much better asset than a 700 credit score. When you apply for a business loan using your business credit history, not your personal credit history, you do not put your personal assets at risk. Also, the loan or credit card will not be reported on your personal credit history.
So using business credit helps protect your personal credit score and assets, but what does it do for your business? Banks expect businesses to need large amounts of money. While they don’t always choose to lend those amounts based on poor credit scores and profit margins, they do expect to get loan applications from businesses for larger amounts. By working hard to create a good business credit score, you can be the one that gets approved for those large business loans. Again, having a good business credit score ends up being a much greater asset than your personal credit score.
So how will you build your business credit score? First, apply for an EIN, or employer identification number. Then open a few low interest business credit cards or lines of credit. Many business supply stores will gladly open a small line of credit for your business if you have an EIN. Then, use these forms of credit sparingly but correctly. Soon you will have a good credit score for your business, and you will be able to apply for small business loans with your favorite bank and actually get approved. Now you understand why business credit is a much better asset than a 700 credit score, so get out there and start building your credit!
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