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(BPT) - Do you have a side hustle you're looking to grow? Are you a small-business owner wondering if you should use your personal credit for your business? Before you do, consider your business credit score. Whether it's a modest side gig or you're looking to expand your small business into a full-time, multi-person venture, it's important to understand your business credit score and how it can help you.
Haven't heard of a business credit score? You're not alone. "What is a business credit score?" is the top question we get at VantageScore from small-business owners. Our goal is to expand understanding about credit scores for everyone, and when it comes to businesses, helping empower owners with useful information to help them make smart financial decisions.
The credit experts at VantageScore Solutions share must-know info about business credit and how small-business owners can establish and grow their business credit score:
Consumer and business credit reports are different
A consumer credit report is for an individual while a business credit report is for an organization, even if it's just one person. What's on the report varies: A business credit report has different number ranges for credit ratings, such as zero to 100. Additionally, you won't see a list of creditors on a business credit report like you would on a consumer credit report.
A positive business credit report matters
A business credit report shows credit-related data a credit reporting company (CRC) has gathered about an organization from different qualifying sources. This includes records of credit card balances and payments, as well as public records, such as bankruptcies. Having a rich business credit report can help you get better terms on business loans and other financial relationships needed to manage and grow your business, including lower interest rates.
Be proactive to strengthen your business credit report
If you get a consumer loan, that information may be reported to all three bureaus for your consumer credit report. On the business side, there's less data consistency and less chance your lender is going to report to all the commercial credit bureaus. Be proactive by using strategies that include reporting to the bureaus, such as utilizing small-business credit cards. You can also work with vendors that knowingly report to the bureaus. Finally, as always, pay all bills on time and keep debt low.
Separate yourself and your business
Just like with consumer credit, it takes time to build a rich credit history. Business owners should start building good credit as soon as possible and start by establishing a business entity. The majority of small-business owners in the United States operate as sole proprietors, which means they don't have a formal business structure such as an LLC, S-corporation or C-corporation. Having these types of designations separates you and your business and therefore separates your business and personal credit.
Avoid tapping personal assets
When starting or growing a business, a lot of people use personal assets such as savings, retirement funds or home equity for funding. Before you do this, exhaust all other possibilities for business financing. There are over 6,500 different companies with lending products for small-business owners, so it's worthwhile to research and find one that fits your needs so you don't have to put your personal finances at risk. Plus, many of these other options come with the opportunity to build your business credit report.
Check your business credit report regularly
Just because you pay your bills on time doesn't mean you should assume your credit report is good. If something negative occurs, you want to respond quickly, such as financial fraud or identity theft. Visit VantageScore.com to access a list of free credit score providers for both your personal and business credit reporting purposes.
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