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Most people recognize the importance of their personal credit score. It determines the credit cards you qualify for, if you can get a good rate on a personal loan, and whether you can get a mortgage. All too often, entrepreneurs may not realize that they also have a business credit score. This rating can be just as important to your business as your personal score is to your personal finances.
Protecting and maintaining a solid business credit score is essential to securing financing and setting up favorable terms with vendors. Understanding the differences between business credit vs personal credit and knowing where you stand is the first step toward building strong business credit, whether you’re an experienced business owner or new to the field.
Business credit vs personal credit
You know how your personal credit score affects things like getting a credit card or a mortgage? Well, your business has its own version of that too. It’s called a business credit score, and it works pretty similarly.
Your personal credit score, which can go up to 850, tells lenders how likely you are to pay back what you borrow. If you’re above 750, that’s excellent, and below 600 is not so great.
For businesses, it’s a bit different. Business credit scores usually range from 0 to 100 or 0 to 300, depending on who’s scoring. They look at whether your business pays its bills on time, how much credit you use, and how long you’ve been around.
Just like your personal score, your business score matters for getting loans and good terms from suppliers. So, keeping both in good shape is key for your financial health—both personally and for your business.
Why is business credit important?
Having a good business credit score goes beyond just paying bills on time—it’s your business’s financial reputation in a nutshell. It can make or break your chances of getting a loan with favorable terms or even getting approved at all. Lenders use it to gauge how reliable your company is with money and whether lending to you is a risky bet.
A good credit score inspires confidence in prospective lenders, business partners, and vendors. It demonstrates at a glance that your company’s 5 C’s of Credit are in good shape, that the industry it’s in is stable, and that your business has a good chance at remaining open for the next 12 to 24 months. You can put together a dazzling presentation to lenders and prove your business model, but your business credit score does the real talking.
Starting to build your business credit early is crucial, even if you don’t currently need a loan. It lays the groundwork for future financial opportunities. The sooner you establish a strong business credit history, the less lenders will rely on your personal credit when evaluating your company’s creditworthiness.
How personal credit can affect business credit?
Keeping your personal and business finances separate is super important—not just for managing cash flow but also for keeping your business credit strong. If your business doesn’t have a solid credit history yet, lenders might peek at your personal credit score instead. That’s great news if your personal credit is in top shape, but not so much if it’s a bit shaky.
Even though your business is its own entity legally, lenders often check your personal credit to judge how reliable you are with finances. So, having a solid personal credit history is key when you’re applying for business loans or credit cards. Building up a solid business credit history early on can really help too. It lets lenders see that your business can stand on its own financially, separate from your personal finances.
How you can improve your business credit score?
There are ways to improve your business credit score — even if you’re just starting out. Here are four tactics to use to build business credit and raise your credit score:
Apply for a business credit card
Apply for a business credit card and use it regularly for business expenses. Aim to pay off the balance in full each month to demonstrate responsible credit management. Keeping your credit utilization low (typically below 30% of your credit limit) shows lenders that you can handle credit responsibly over time.
Check for mistakes
You should also make sure that your company’s credit history is accurate. Purchase a credit report from one or more reporting bureaus and review the information therein for any inaccuracies. If you happen to find an error in your report (nearly 25% of businesses do), be sure to contact the issuing bureau immediately. You’ll want to monitor your credit history regularly for any inconsistencies (or worse yet, fraudulent activity).
Negotiate trade credit
Establish trade credit agreements with suppliers and vendors who report payments to business credit bureaus. This type of credit allows you to pay for goods and services on agreed-upon terms, typically 30, 60, or 90 days. Consistently making payments on time enhances your creditworthiness by demonstrating reliable financial management.
Establish a line of credit
Apply for a business line of credit to access funds as needed for operational expenses or growth initiatives. Unlike a term loan, a line of credit offers flexibility—you borrow only what you need and pay interest on the amount withdrawn. Successfully managing a line of credit builds trust with lenders and improves your business credit score over time.
Start managing your cash flow better
So, remember, just like your personal credit score affects your ability to get loans and manage finances, your business credit score is crucial for your company’s financial health. It shows lenders and suppliers how reliable you are with money and can make a big difference in securing favorable terms.
At Forwardly, we understand the importance of seamless financial management for small businesses. Our business payment software is designed to simplify invoicing, streamline bill payments, and provide real-time insights, helping you manage cash flow effectively and build a solid credit history. Whether you’re just starting out or looking to expand, Forwardly is here to support your business’s financial journey.
