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Can You Build Business Credit if You Have Bad Personal Credit?

Can You Build Business Credit if You Have Bad Personal Credit?

Dealing with a bad consumer credit score is frustrating, but does it impact your business credit score? While these two numbers may be related by performing similar roles in your personal and business lives, they aren’t linked. Keep scrolling to learn more.

What Is Your Business Credit Score?

Much like your consumer score, your business credit is a risk assessment tool that determines the likelihood you’ll be approved for a cash loan or line of credit. Your score is a three-digit number that represents your enterprise’s previous borrowing history. It also summarizes your broader report, which contains details about the kinds of accounts you have, their age, and their payment history.

A lender looks at this information to assume your future borrowing abilities. They look to see if you’ve paid your bills on time to determine if you will continue to do so once they grant you funds.

Your Personal and Corporate Reports Are Not the Same

Lenders use your corporate file to make a similar judgement call when they check your consumer report. However, they are two distinct things.

Here’s why:

1.      Your corporate score falls between 0 and 100, rather than the consumer scale of 300 and 850.

2.      Your corporate report details different data points that don’t line up with your consumer history.

This means they aren’t identical in any way. A lender can’t look at one report to make an accurate prediction about the other. It also means you can’t leverage accounts in one file to affect the other report. Any bad credit installment loans you use in your personal life won’t show up in your corporate report; how you handle them also won’t affect your corporate score. The opposite is true as well. Any corporate credit cards you use won’t show up in your consumer file, and your utilization ratio won’t impact your personal score.

Building Business Credit Is Possible

Since these reports are totally separate, your personal credit has no impact on what you add to your corporate file. This comes as good news, as you’ll be able to build positive history even while your personal file is full of negative entries.

The trick is to focus on what actions look good to lenders.

·        Paying bills on time

·        Keeping a low utilization rate on credit cards

·        Establishing trade lines

·        Removing errors from your report

But don’t get too focused on your corporate score. Your personal file still plays an important role in your finances.

Lenders May Peek at Both Files Before Granting You Funds

Lenders may check both your personal and corporate reports before they grant you a loan because they want to know as much information about you as possible before making a decision. This is especially true for business owners who have thin credit or who are the sole proprietor. Checking into your consumer file gives lenders insight into your creditworthiness as an enterprise.

If they do this, your consumer file may impact their decision over a corporate account.

What they see depends on the account you use, as not all quick bad credit installment loans will show up in your report. Some lenders won’t report your payment history unless your account is delinquent. Others report this history right away.

Nevertheless, there’s a good bet a lender will see your basic score and factor it into their decision-making process.

Focus on Building Positive History in Both Files

Your consumer and corporate files are sisters, not twins. While they may be linked, they use different data points that don’t line up. So, it is possible to build positive business credit while your personal score is down in the dumps. As long as you focus on diversifying your accounts, paying bills on time, and maintaining a low utilization ratio, you’re set to pack on positive history.

That said, you’ll make the best impression if you both your scores are prime.

Luckily, much of the same advice applies to both files; focus on paying your bills on time and lowering your utilization ratio as these make up 65 percent of your score, so they make an excellent first step. You can always do more research to learn what other factors impact your score so you can start building positive history today!


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by Rebecca Jones // Contributor to Businessing Magazine.

Opinions expressed by contributors are their own.