The National Foundation for Credit Counseling said that people are more embarrassed to admit their credit score than their weight. But entrepreneurs starting their own businesses may believe that they are in a good position as they already have a fantastic credit score. In the extreme beginning when investors are thinking about whether to invest in you, your personal credit score matters.
But as you continue to grow your business your personal credit score becomes less important. Your business credit score takes over. There are so many entrepreneurs who don't realize that their business's credit score is different from their personal one.
It makes sense when you think about it. A CEO can have a history of paying back loans, whereas their business could have defaulted on its debts.
The Urgency to Repair
In the beginning, your credit score is bad simply because you lack a credit history. Every business starts from the bottom of the ladder. And that's not a problem when seeking out initial investment. Most investors may decide to look at your personal credit score, or they may forgo the idea entirely.
You are not repairing your credit score at this stage. You are building it up entirely from the bottom. This should be a top priority for you.
A Simple Trick
At least 35% of your credit score depends on whether you pay your bills on-time. Essentially, you can build a significant portion of your score by simply meeting your obligations. This means that you can pay for your rent and Internet connection without any problems.
CEO Will Vigil said that, "Utility companies and landlords are under obligation to report your financial performance to credit scoring agencies. This is now common practice and you will be hard pressed to find someone who doesn't abide by this. Nevertheless, this is a blessing as well as a curse."
Make every effort to pay your bills on-time. If this is a problem, setup a regular direct debit so you don't have to remember to make a payment.
What are Your Credit Limits?
Companies often find themselves in trouble with cash flow during the early growth stages of business. It's okay to take out loans and to borrow from credit cards, but you should keep in mind what your credit limits are. Never borrow more than a third of your overall credit limit or this will start to impact your score.
But what if you need the money?
You can go over this limit, but try not to stay over it for too long. Aim to pay the money back as soon as possible otherwise you will need to look into credit repair.
What if My Business Credit Score is Poor?
Entrepreneurs are among the most likely people to need to borrow money. And that puts them in the high risk category for lenders. If your business credit score is poor, you will struggle to gain the funding you need.
But there are things you can do, including:
Existing Businesses and Bad Scores
If you have existed for a while and your score has taken a hit, you may have no choice but to take out a secured loan. However, the chances are your company already has existing debts in which to pay off. Loan consolidation can make things simpler, as well as more affordable for you.
Look into loan consolidation and start paying down your debts as soon as possible. This can help to repair your credit score at the earliest opportunity.
But the important thing is to look into how this happened in the first place. A credit score is a rating of financial responsibility and behavior. If you have a bad score, you will have made some mistakes along the way. More important than this number is an honest look at your financial activities and where you can do better.
Great business concepts have failed as a result of poor financial management many times before.