- Business credit is not the same as personal credit—they’re based on different factors and use separate EINs.
- It’s never too early to initiate building your business credit rating. The sooner you start, the better.
- Building business credit takes time and effort. You must be consistent and strategic about it for months or even years.
- Paying bills on time is just one aspect of having a good business credit score. You also need to manage debt responsibly and show a reliable income source.
- Taking out loans can help improve your business credit rating if you make the payments on time and in full and keep your available credit limit manageable.
- Being in business for long does not guarantee a good credit rating—several other factors are considered when assessing your score.
A good credit rating matters when running a business, and having one can ease up loans. A high credit score can help you get loans at a lower interest rate, lease office space, and get approved for other credit products. Conversely, a low credit score can hurt your chances of securing funding and doing business with other companies.
7 Figures Funding will dispel some myths about business credit and give you the facts.
Myth #1: It’s the Same as Personal Credit
New business owners sometimes need to realize that business and personal credit are different.
Business credit is based on your company’s performance, while personal credit is based on an individual’s financial history. Your business must have a separate EIN (Employer Identification Number) to establish a credit profile.
Personal and business credit are two different things. They may be used for similar purposes, such as getting a loan or renting office space, but ultimately, they’re separate.
Myth #2: It’s Not Necessary to Build Credit Score Until You Need it
Some business owners think they only need to establish business credit once they need it.
Building a credit score is ongoing and should be started long before you need it. Whether you’re looking to buy a house or car in the future, opening a new account and using it responsibly now can help ensure you have a good credit score when the time comes. Paying bills on time and keeping low balances are essential to building a good credit score.
Myth #3: Building Business Credit is Easy and Quick
Another false assumption is that building business credit is easy, fast, and won’t take much effort.
Establishing business credit takes time and dedication. You must build a solid financial foundation by making timely payments to vendors and lenders, who will report the payments to the credit bureaus. It’s also essential to pay your bills on time every time — to begin making an impact with creditors.
It can take up to six months for your efforts to start showing in your reports, so it pays off to remain consistent.
Myth #4: By Paying on Time Will Offer Good Credit Scores
Most business owners believe that paying back on time impacts business credit positively.
Although this is partially true, paying back on time positively impacts your business credit rating. Still, it is only part of the equation. Creditors will also consider how much you owe and your payment history when determining whether you are a reasonable risk for lending.
You need to demonstrate that you have a reliable source of income and manage debt responsibly. To improve your credit rating, consider paying before the due date, asking for a credit line increase, and never max out your available credit limit.
Myth #5: Getting a Business Loan Will Hurt My Business Credit Score
It’s thought that taking out business loans can negatively impact the business credit rating.
Getting a loan can help you improve your business credit rating if you make the payments on time and in full. The only way that taking out a loan could negatively impact your score will be if you miss multiple payments or default on the loan altogether.
In addition to paying off the loan as scheduled, it is also important to remember that lenders consider a few things. They consider the amount of debt and the time since it was taken out when considering whether or not to grant new loans. That means short-term loans can help improve your business credit rating, provided the payments are made on time.
The key is using loans responsibly and keeping debt manageable, so lenders see you as a reliable borrower. All these factors combine to ensure that taking out a loan won’t hurt your business credit score but could help it in the long run.
Myth #6: Being in Business for Several Years Means a Good Credit Rating
Business owners sometimes also assume that being in business for a long time means having a good credit rating.
Being in business for a long does not guarantee a good credit rating. Several other factors, like timely payment of bills, debt levels, and repayment history, are considered when assessing your credit rating.
Investors may refuse business funding based on business credit. So even if you have been running your company for years without defaults or late payments. It is still essential to check your credit rating periodically to ensure everything is in order.
Business owners need to understand the myths regarding business credit to make informed decisions regarding financing their enterprise. Knowing your credit rating and taking steps to maintain a good score will help you access funds and secure the best terms when seeking business funding. It, in turn, will ensure that your business has the resources it needs to succeed and grow.
By staying on top of your credit rating and following sound financial principles, you can ensure that this critical component of your company’s financial health remains strong.
Secure Business Funding in New York, NY
suppose you’re an entrepreneur or small business owner in New York, NY. In that case, 7 Figures Funding can help you secure the best business funding options. Our company provides an excellent opportunity for those who are fed up with typical financing methods. Instead, we offer 0% credit lines without the need for collateral. It gives your business a chance to experience tremendous growth anywhere in the U.S. Our systemic approach has helped thousands of companies across the U.S. reach their desired objectives.
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