Friday, April 22, 2016

5 Reasons You Should Be Monitoring Your Personal Credit Score

If you think your personal credit score and your business credit score are two completely different things, you’re right—mostly. But that doesn’t mean you can afford to ignore your personal credit score and expect to get business financing when you need it. Check out these 5 reasons why monitoring your personal credit score matters to your business’s financial health.

Thinking of Financing? Here’s Why Your Personal Credit Matters

1. Getting a Personal Loan

You might need personal credit to help finance your business! According to Experian, half of all small businesses use personal credit in some form for business financing. For example, if you’re starting a new business, you may want to take out a personal loan or use personal credit cards to finance those startup costs. The better your personal credit score, the higher your credit limit will be—and the easier it’ll be to get a loan.

2. Business Loans, Meet Personal Credit

Even when you’re applying for business financing, lenders will use your personal credit score as part of their underwriting equations. If your business doesn’t yet have a strong credit history, lenders will have to rely on your personal credit score when assessing whether you’re creditworthy. And even if you do have a business credit history, many lenders still factor your personal credit score into their evaluations. After all, if your personal credit history is poor, that shows something about the way you manage money.

3. Business Credit Cards

Your personal credit score can also affect the type of business credit cards you can qualify for. Again, if your business is just starting out or in the early stages, credit card companies only have your personal credit score to go on when assessing the type of credit limit and interest rate you’re eligible for. A poor personal credit score will negatively impact your business’s chances to get the best rates, and it’ll decrease your available credit.

4. Watch Out for Identity Theft

Monitoring your personal credit score can alert you to fraud, identity theft, and other big problems. If you don’t regularly review your personal credit report, you might not find out about identity theft or misuse of your credit until it’s too late. Needless to say, identity theft can have a huge impact not only on your personal financial situation, but also on your business.

5. Overall Financial Health

A low personal credit score can be a wake-up call that you need to get your financial house in order. Some small business owners let their personal credit suffer by taking unnecessary financial risks for the sake of their businesses. Others get into trouble when they mingle business and personal funds or start living a lifestyle that their businesses can’t financially support. A poor personal credit score could be the kick in the pants you need to start managing your personal finances more appropriately.

How to Build Your Personal Credit

The steps for building and maintaining good personal credit are very similar to those for business credit:

  • Pay your bills on time and in full.
  • Be especially vigilant about your most important payments, like your mortgage, student loan, or car loan payments, as these will indicate your ability to repay lenders.
  • Use credit cards wisely to build a positive credit history by not purchasing more than you can pay off.
  • Don’t max out your credit cards or other lines of credit. A good rule of thumb is to keep your credit usage below 25% of your available credit limit.

Don’t wait until you’re looking for financing to review your personal credit report for errors, omissions, and other issues. You’re eligible to get a free credit report once a year from each of the major consumer credit agencies: ExperianEquifax and TransUnion. Keep an eye out, for the sake of your business’s financials!

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