Many of us know the importance of separating personal and business life, but if you are a small business owner that can become almost impossible. You are your business. Even if you work hard to keep your business credit strong, if you have issues on your personal credit bureau report, those can also affect the approval process and the terms given to you. If your business is closely held (1-3 owners/family business), if you have been in business less than 10 years or if you have less than 100 employees, chances are your personal credit will be part of the decision in granting business financing. During underwriting, your personal credit score is a direct reflection on how capable you are as a business borrower. If you can’t handle your personal finances well, a lender will assume you won’t be able to handle your business finances well, either.
If you have a lower credit score the first thing you should do is find out what is causing the low score. Join one of the free websites which allows you to review your credit bureaus; www.creditkarma.com and www.freecreditreport.com are two examples of popular websites. Here is a good article on how to improve your personal credit score: https://www.creditsesame.com/blog/credit-score/improve-your-credit-score/. If you find errors on your report, try to rectify those with the three major credit bureaus immediately:
Equifax– 1-866-349-5191 (Say ‘Agent’ or Press ‘5’)
TransUnion– 1-800-916-8800 (Press ‘0’)
Experian– 1-800-509-8495 (Enter ‘SSN’, Say ‘Credit’ OR press ‘2’, Say ‘Credit Report’ OR Press ‘1’, say ‘Credit Questions’ or Press ‘1’)
You may also have a lower score due to lack of credit history. You cannot have strong credit without using credit. A couple of ways to establish credit are to open a credit card account, open a loan with your local bank/credit union or open a car loan. Having installment history such car loans and mortgage loans is important.
Keeping your personal credit strong will pay off when you qualify for the best possible financing terms for your business!