You are right to think that your business credit and personal credit are closely linked, but it is crucial to remember that they are not the same. If sewage treatment plant is installed next to your new outdoor seating cafe, which you happen to be financing on personal credit, you and your family could be in danger from bankruptcy.
It may not be a sewage treatment plant but you never know what unforseeable catastrophe your business may encounter. What I was trying to show you is that interchanging your business credit and your personal credit can lead to disastrous consequences. We all have loved ones whom we would like to see living comfortably, it could be your parents, your wife or husband, and maybe even your kids.
From the second you get a business credit card you should keep your personal credit out of your business expenses and vica versa. This is because the two types of credit are subject to different rules and regulations, for starters your personal credit is under personal credit protection to preserve the individual consumer. Some of these protections do not apply to businesses, and can be a major setback in the future.
The CARD Act requires that your credit card issuer to give you at least 45 days notice before changing things such as late payment fees and your interest rate. Your business credit is subject to change without warning!
You should pay attention to your payment allocation, your business credit payment allocation is designed in the issuer’s favor, you end up paying more in interest than your personal credit.
Separating Your Business and Personal Credit
It is essential that you work on separating your business credit from your personal credit if you want to increase your success and make more money. Your business credit is a measure of financial respect your company has earned based on the previous record of meeting financial obligations.
It not only goes to show how strong your business model is but also your commitment and responsibility to you business goals. This in turn gives investors and other financial organizations confidence that if they lend you funding, you will use it to leverage your business to grow and improve its ability to operate.
A great starting point is to use your business credit card ONLY for business expenses, use it often but do not max the card out. If you pay your bills on time and in full you will not only show that you are a reliable customer but it will boost your business credit score substantially.
If you are a sole proprietor and you have no choice but to use your personal credit history to determine your business credit rate, not to worry. I am about to show you how to use your personal credit to your advantage and give you a better credit score. The key here is expanding your available credit while at the same time keeping the amount you borrowed the same. This shows that you have reduced your credit utilization, which will boost your credit score and give you more leverage when negotiating rates.
It’s in my best interest to see you succeed and make money, and now with the knowledge you have taken from here you will be able to apply for business credit with ease and get the best terms and rate for your business venture.