Establish Business Credit Or Personal Credit – Which Makes The Most Sense?

To qualify for loans, you’ll build your house with the most solid foundation if you both…

  • Establish Business Credit

  • &

  • Establish Personal Credit

To understand how both of these credit reports work think of someone you trust.

How did they get to that position of trust? Wasn’t it because…

They followed through on their promises. They stuck with you and were loyal throughout the years.

If someone made a promise to you and didn’t keep it how would you feel? Would it build your trust in that person?

You see, the concept of building credit is all about trust. When you agree to repay a loan, if you do so consistently over time, lenders have no choice but to trust you with their money.

So here's some question you could ask yourself:

In the past, have I paid back the loans I promised to repay?

Have I had to seek ways out of paying them because of difficult times?

If so, can I commit as of right now to paying all of them... on time?

If you’re like the majority of Americans, your credit report may very likely reflect at least one account with a history of default.

One late payment might not destroy your personal credit. But to establish business credit you’re held to a much higher standard.

So then, let’s take a good look at the contrasts that exist when you establish personal credit verses when you establish business credit. Here’s

Your Question

Why should I establish business credit if I already have good personal credit. Is there really any difference between the two?

Real Answer

Why should I establish business credit if I already have good personal credit. Is there really any difference between the two?

Establish Personal Credit Establish Business Credit

Establishing

File Established Automatically

Whether you …

  • want it

  • like it

  • know it

  • approve of it

Or not…

The day that you get your first line of credit, is the day your personal credit file is established.

Your creditors WILL report to the credit bureaus your name, address, employer, number of inquiries, and your payment history.

Establish Business Credit By Choice

In order to establish business credit you have to build it on purpose. You must seek out and search for vendors and lenders that will report positive history.

Most businesses, although they may be borrowing money, don’t have a business credit file at all.

You see, many vendors only report to the credit bureaus if/when there is a default. Instead of reporting positive history, these vendors and lenders only report negative history.

That results in businesses that have been around and paying their bills on time since forever, but don’t have a good established business credit profile to show for it.

No Opportunity to Establish a New File from Scratch.

You are pretty much stuck with your file no matter what.

If things go wrong and you have to file for bankruptcy or you have other negative items on your file, you pretty much have to wait anywhere between 7-10 years before those negative items completely disappear from your credit report.

With that in mind, you can see why it’s important to guard it like gold by maintaining a good payment history.

Also, if you have good credit I recommend that you have a service like

LifeLock.com that will protect you from identity theft. It’s an event that may be out of your control but could destroy your good credit report.

Can Start As Many Files As You Like.

Yes, you can establish business credit on as many businesses as you like. So if your business goes through a hard time and can’t meet its obligations, you’re not doomed.

You can start a brand new business credit file and start all over. But it can be a real hassle to have to start from scratch.

In that case, there is another possibility. You can purchase a shelf corporation. (A company with established business credit that hasn’t been in use. Instead it’s been “sitting on the shelf.”)

Age Can Slow You Down

New laws require that you must be a certain age (at least 21) or have a parent’s consent and/or co-sign.

So if your parents choose not to cooperate, you won’t be able to establish your personal credit file until you turn 21.

Age Doesn’t Have to Block You

As long as you have your own business (a corporation or LLC) no matter your age, you can still build your business credit profile.

In some cases, you may need a co-signer to provide a personal guarantee.

However, it is possible to build it without a previous credit file or a co-signer. It would just take longer to do.

Multiple Scoring Models Cause Confusion

When you check your personal credit score, unless you get it from MyFICO.com…

You’ll be purchasing your Vantage Score (Ranges 501 - 990)

MyFICO.com is presently the only resource for consumers to get their FICO Score (Ranges 300-850).

To make matters worse, lenders are pretty much only interested in your FICO Score, not your Vantage Score.

However, you still can’t get your Experian FICO score.

In fact, Experian doesn’t allow consumers to check their Experian FICO score anyplace.

It’s simply unavailable! You can only get your Experian Vantage Score.

Lenders though, can and in many cases will make a decision based on all three of your FICO scores.

This causes confusion among borrowers for a few reasons.

  • They don’t know there are 2 scoring models and they assume the lenders will see the same score that they see.

  • They don’t know that the Vantage Scores will always be higher than the FICO score because the ranges themselves are higher.

  • They can’t understand why they may have gotten turned down when their score seems to be so high.

Only One Scoring Model Keeps it Simple

No such confusion exists in the world of business credit because the bureaus all work with the same scoring model.

That scoring model is called the Paydex Score (Ranges 0 - 100)

Correcting/Disputing

You’ve Got Rights

Laws like the Fair Credit Reporting Act forces the credit bureaus to treat you fairly.

For example, if you make a dispute, they’re required by law to research the item and respond to you within 30 days.

They’re also required to remove the item if it is indeed an error.

No Rights At All

You can make a dispute if you like, but there are no laws to protect you. So, don’t expect a prompt response or a great result.

If your business credit is marred with tax liens, bankruptcies, and the like, it may be best to start building a new business file altogether.

Why don't you have rights? You might ask.

Well, because they figure you should know better.

For one thing, you’re not considered a consumer, but a savvy business owner.

Also, you purposefully built your business credit right? (see above - Establish Business Credit By Choice)

So if you’re not paying your bills on time they allow you to bear a heavier responsibility.

Although it may seem unfair, it is still the reality.

Weigh of Missed Payments Decrease With Time

If you miss a payment now and then, over time, the weight of that missed payment will decrease.

If there are any inaccuracies, no matter how minor, you can dispute the entry and it very well may be able to come off of your report

Takes Longer For The Weight of Missed Payment to Decrease

If you miss a payment, you may or may not be able to get it off your report by means of a dispute.

Also, you may have to wait much longer before it decreases in weight.

Pros & Cons

Borrowing More Decreases Your Leverage-Ability

Every time you borrow it shows up on your personal credit report.

That's not good for you as the business owner for a few reasons.

  • 1. You may be using one credit card for business expenses.

  • 2. The use of the credit cards used for business purposed may cause you to go beyond the recommended 10%-30% debt to credit ratio.

  • 3. Ultimately this leads to a lower personal credit score which further limits your ability to borrow.
Borrowing More Increases Your Leverage-Ability

Borrowed funds only show up if a lender actively reports positive history (See above: Establish Business Credit By Choice) or if you default.

Also, unless you choose to personally guarantee these business loans, they will NOT show up on your personal credit report at all.

This is a wonderful benefit as it allows you to greatly increase your ability to leverage yourself and borrow more money as needed.

It also allows your personal credit to soar to new heights.

Limited Financing Potential

After you reach a certain amount of credit on your personal credit report lenders start to view you as a higher risk borrower.

They’ll start to pull back the purse strings to make sure you don’t over extend yourself.

That’s one reason why it’s very difficult to get a million dollar unsecured loan in your personal name.

If you try to get a line of credit for a million dollars in your personal name, with no collateral and no personal guarantee, lenders will likely turn you down after they’ve had a good really beer belly laugh.

Un-Limited Financing Potential !!!

As you borrow money and pay it off on time and even early, you build more and more and more and more trust with lenders.

When you maintain that good payment history and show increased profit earnings in your business, lenders will start to view your business income potential as practically limitless.

If you’re skeptical about that, just think about companies like Apple Computers, Ford Motors, and McDonalds.

Lenders are practically standing outside of their doors with their hands raised high begging, “Pick me! Pick me!”

They can borrow tens of millions of dollars without personal guarantees or collateral because of their stellar business credit rating.

You don’t have to be a multi-billion dollar corporation to enjoy this kind of limitless leverage.

Here’s what you do need though…

To Establish Business Credit.


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Take a listen to these small business owners.

They became raving fans of Business Credit Coaching...

Why?

Because now they qualify for:

  • unsecured business lines of credit

  • without any personal guarantees!

Here are their stories:


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