A credit score determines how credit-worthy you are, and the general suggestion is to keep it above 670. However, CNN discusses that it’s actually not that simple to keep it around that number. This is because there are two basic kinds of scoring systems: FICO and VantageScore. 670 may be classified as “good” for both, for example, but 600 is “fair” for FICO and “poor” for VantageScore. Lenders also have variations of these systems, resulting in different scores. Because of this, it’s more important to be aware of where you roughly stand and always work on improving your score.
If you currently don’t have the best credit score, there are ways to remedy it. AskMoney explains that one thing you can do is to always pay on time. Another is to keep your credit card balance ideally below 30% utilization. While a good credit score will make it easier for you to get a mortgage, increase your credit limit, or even buy a car, it also has plenty of consequences that will benefit your business. Below are a few.
You get approved for loans
Having good personal credit history will make it easier to qualify and be approved for loans. This is because the newer or smaller your business is, the more likely that your personal credit will be taken into account. After all, startups may not have a comprehensive business credit history yet, while small business owners tend to use personal means for funding. Alongside this, a good credit score can get you lower interest rates for higher amounts of financing. You also have better options for terms and payment schedules.
Moreover, one of our writers, Josh Biggs on Meldium once talked about how even if you had a rocky credit history a while back, it won’t automatically mean you’re disqualified from business loans. Lenders look at your overall credit history. In fact, they’re more concerned about your recent payments, as they’re an indicator of your sense of financial responsibility at the time of borrowing.
You can apply for business credit
If you don’t have a business credit card yet, you may want to consider getting one to build business credit. The Balance lists some of the benefits of a good business credit score, such as higher loan limits on lower interest rates, and attracting other business investors. Financial institutions now also mostly take business credit into account when deciding if they’ll approve a loan. For sole proprietors, having a business credit card also separates your finances from the company’s — so if your personal credit ever takes a hit, it won’t affect your business. Inversely, you won’t be personally liable to pay for business debts either.
However, when applying for a business credit card, a personal credit score is one of the things a bank will check.
You get better terms from suppliers
A good personal credit score will also indirectly get you better terms from business suppliers and start a trade credit. Trade credit is an agreement that your business will be allowed to purchase goods from your supplier without needing to pay any cash upfront. Once you make revenue, you can pay your supplier in installments, much like how you would pay banks when you use your credit card. Another advantage of using trade credit is that it can increase your business’s creditworthiness so long as you honor all agreements. But to start using trade credit, you’ll first need to show suppliers that they can trust you to repay your dues in a timely manner.
A good personal credit score affects more than just personal financing — it also helps you build a better business by allowing you to qualify for loans, apply for business credit, and form better relationships with your suppliers. So, utilize your credit cards and pay your bills on time.