Lending institutions would always be checking an individual’s payment history by taking a look at his or hers personal credit profile. If a person has a poor credit score coupled with a not so good payment history, it will be difficult for him or her to get a loan approved by just basing it on personal credit. Business owners may not be aware, but things like this can affect their business because during start up, businesses oftentimes use their own personal credit as the basis for building business credit. That should not be the case. As an entrepreneur or business owner, make sure that you build your business credit without having creditors look at a possibly low personal credit.
What makes a business credit similar to a personal credit? What makes it different? Well, just like the church and state, it is highly recommended that both types of credit be kept separated. It might not be that way at firs,t but at the first opportunity that you get, you should build business credit and keep it at arm’s length from your personal credit. Your business credit will show how good or how bad you are when it comes to repaying your loans and paying your bills payments. In small- sized businesses, business credit should trump out personal credit because when the time comes for you to turn your business into something bigger and better, you will need to invest more on it and who do you turn to put these plans into fruition? You will turn to your investors, your partners, your banks, you suppliers, your creditors.
Here are some simple steps you can follow to build your business credit even if your personal credit is not at its best.
Step 1: Separation of personal and business information. Your company or business should be an entirely separate legal entity. You can register your company as a corporation or some other type of business group and then make it legal by registering it with its own tax identification number also known as a federal TIN. Also, make sure that your business will also have a listed number and a valid business address.
Step 2: If you will not be granted credit by any lending institution, build your business credit first through trade credit. What you can do is approach suppliers and vendors who you work with regularly and request if you can extend your credit with them. They can easily grant you this, especially if you keep your payments updated. Major suppliers like Staples do this all the time.
Step 3: Be responsible with your payments. If you have any existing credit accounts, do not skip or even be tardy with making payments on those accounts. You can even exceed expectations by making payments earlier. Do this for at least six months and try to open or request for other credit lines. If the lending company checks your payment history and it’s clean, the new request will have a higher probability of getting approved.