Your personal credit is important for many obvious reasons; if you want low rates on a car loan, mortgage, or to pass a background check or to impress your in-laws, a healthy credit profile is crucial. Many people, however, are unaware of another world of credit scores and reports: business credit.
Your business credit score works for your business just like your personal credit score works for you personally, but with so many business owners sticking with their personal credit to get financing for their business, does your business credit score really matter?
The answer is a resounding, earth-shaking YES. Without knowing the reasons why, however, it may be difficult to feel motivated to work on your business credit profile. Here’s why your business credit score matters.
Access to Better Financing
Many business owners lean on their own savings and personal credit when they first start a business, but this should be short-lived. Business loans and other financing products will report to one or multiple business credit bureaus, and your business credit profile will start building, for better or worse.
By paying close attention to your business credit score and credit report (you can see both for free with Nav) and by making your payments on time and following other sound credit practices, you can possibly put yourself in a good position for future financing options.
Separate Your Personal and Business Finances
Life as a business owner can be complicated. The time investment on its own can put strains on family time and other relationships or interests, and that’s not even taking the financial or logistical tolls into account. If you haven’t yet, taking measures to separate your business and personal finances can help organize and simplify your life. A Nav survey found that 70% of business owners without a separate business checking account had been rejected for a business loan, and that 50% of those without a business bank account wanted to open one but hadn’t had the time to do so.
Getting a business loan or business credit card is a helpful and important step in not only keeping your finances separate, but also for establishing a business credit profile. By keeping business tradelines on your business credit report and completely separating your finances, it can reduce your debt-usage ratio and keep things tidy and perhaps more attractive to prospective lenders.
Put Potential Vendors at Ease
Years before Levi King founded Nav, he had acquired another small business in Idaho. As he went to close a deal with a potential vendor, the vendor backed out after seeing King’s business’ credit profile. Apparently, the previous business owner hadn’t been too sharp in making his payments on time, and his business credit score reflected this.
Because anyone can check your business credit profile, it may factor more heavily into non-lending agreements you seek out with other vendors or business partners. By building a credit profile that reflects your integrity and ability to come through with on-time payments, you can put potential vendors or partners at ease and enjoy the positive effects of good relationships.
Again, the short answer is that your business credit score does indeed matter, and paying attention to it can help you grow your business.
This article was originally written on July 31, 2018 and updated on October 25, 2019.
Business credit doesn’t carry the personal weight. It seems no matter my D&B or EXP Intell score I struggle to get my personal credit up. It can go down 60 points and come up 2. The big 3 work against us.