Using your personal credit card to pay for business expenses you are increasing your personal debt to income ratio. This will cause the debt of the business reports back to their personal credit reports lowering their scores because their business debts hurt their personal debt to income ratio.
To help prevent business owners from damaging their personal credit, every business owner should follow the simple steps of establishing business credit. By establishing business credit the debt of the business will report to the business credit file and not the personal credit file. Establishing business credit will also help the business build a strong business credit file so loans, lines of credit wont require the business owner to sign a personal guarantee.
Here are just a few reasons why every business owner should establish business credit.
1). Establish creditability. You cant expect to walk into a bank and ask for a business loan with no business credit or business history. By establishing a good business credit profile you will be able to secure the financing your business needs.
2). If your business should fail, you would still be legally responsible if you used your personal credit to finance your business
3). Saving money. That is right, business credit rates are typically lower than personal credit rates. A few percentage points in interest mean thousands of dollars in the long run
4). Float your business through tough times. Even though everything make be going great currently, you never know when your company will take a turn for the worse or when economic times might change. By establishing business credit you will be prepared for the down time.
5). Get the money you need. Lets face it, without the money you need to finance the launch or expansion of your business you really wont be in business at all. Do not make the mistake of using your personal finances to finance you business.
The are many, many more reasons why you should establish business credit. We have all heard the saying, "keep business expenses separate from personal expenses," right? The only way to do that is to set up your business properly in the first place by establishing business credit.
Interested in learning the basics? A good starting point is to do your research and find the answers to the questions below.
-What rights does a business owner have if there is incorrect information on a credit report?
-How do I obtain a business credit score?
-What do business lenders look at in order to extend business credit?
-Where do you find companies that grant credit?
-Which companies report to the business credit bureaus?
-What credit cards companies do not require personal guarantees?
You can get the business credit you deserve. My suggestion is to start the education process of learning how to establish business credit today!
