Business Credit Cannot Be Compared To Personal Credit;  The Styles Of Reporting Are Completely Different

Most small business owners know the fine line between business and personal credit scores in the eyes of the bank.  Any unexpected event like a large cancelled order or late payment can reflect on personal and business credit, which in turn negatively reflects on the business credit score.  Credit standing must be protected as any other business or personal asset, and needs close monitoring.  It is advisable to get a business credit card to establish credit, paying it off monthly.  Maintain personal finances as well as business expenses equally.  Avoid loans or lines of credit calling for personal guarantees.  Avoid mortgaging a house to fund a business, while at the same time not being afraid to sell assets to make loan payments.

Incorporation is a wise legal and tax move, to shield from personal liability and reduce tax burdens.  Using personal credit to finance a company’s launch or growth can cause financial disaster.  Whenever a personal credit card is used to purchase business items, it reduces the available personal credit.  Investing savings into a business is risky if the business goes under or an unforeseen catastrophe occurs.  Whenever personal assets or money are used for business financing, personal credit is damaged.  To get financing, a personal credit check is made which reflects on credit scores. The more personally guaranteed credit lenders see, the less likely they will be to give. 

Regardless of an owner’s personal credit scores, corporations acquire their own credit rating, and build separate credit history by applying for and using corporate credit.

Credit rating assesses credit worthiness of individuals or corporations based on financial history, current assets and liabilities.  They reflect the ability to pay back a loan and have been used for insurance premiums and sometimes  pre-employment checks.  The higher the risk, the higher the interest rates will be.

Immediate access to business credit reports determine what decisions other businesses make regarding lending.  One corporation may monitor another’s payment history, determining any risk of financial trouble or bankruptcy.  Each company needs to monitor their own credit report for any errors that may negatively affect cash flow.