As a business owner, you should closely monitor your business’s credit score. Business credit scores can fluctuate. With a high business credit score, you’ll have an easier time securing loans and other forms of debt financing. A low business credit score, on the other hand, can pose financing challenges. And without financing, you may struggle to grow or even run your business. Nonetheless, there are several business credit myths that you shouldn’t believe.
#1) Same as Personal Credit
Business credit is not the same as personal credit. Business credit refers to the credit worthiness of a business entity. Personal credit refers to the credit worthiness of an individual person. They are both measured in numerical scores. Business credit is simply associated with a business, whereas personal credit is associated with an individual person.
#2) Buying Things on Credit Will Improve Your Score
In a perfect world, all goods and services that your business purchases on credit will improve your business’s credit score. Unfortunately, this isn’t always the case. Only some vendors may report your purchases to a credit bureau. These reported purchases should improve your business’s credit score. Credit-based purchases that go unreported, though, won’t impact your business’s credit score.
#3) Only Late Payments Will Harm Your Score
Like with personal credit, failing to pay your business’s bills by their due date may harm your business’s credit score. With that said, late payments aren’t the only thing that can harm your business’s credit score. Hard inquiries can have a negative impact on business credit scores. If your business has an excessive number of hard inquiries in a short period, your business’s credit score may drop.
#4) Business Credit Isn’t Necessary
While some businesses may not need it, most businesses will, in fact, need a good credit score to succeed. As previously mentioned, it affects financing. Lenders will check your business’s credit score, and they’ll use this information to approve or reject your application for a loan. Interest rates are also affected by business credit. A high business credit score will help you secure a low interest rate, meaning you’ll pay less over the term of a loan.
#5) Not Available for Sole Proprietorships
Some business owners believe that business credit isn’t available for sole proprietorships. The truth is that all businesses are eligible for business credit. Whether your business is an S-corp, LLC or sole proprietorship, you can build credit for it.
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