The Difference Between Business Credit and Personal Credit

If you’re a business owner, you’ve probably already been made aware that there are two types of credit- your personal credit score, and your business credit score.  If you’re new to the business world or running a business, it might be new to you that there are two types- but don’t worry! In this blog, we’re going to teach you the difference and why establishing business credit is so important. Are you ready?

Person credit.  Ahhhh, that lovely credit score that stresses most human beings out.  It’s that one number that causes more anxiety than the scale.  It’s the one number that can shut every single door to your dream house, dream car, or dream college.  Essentially- your personal credit score is a statistical number that tells retailers your “creditworthiness.” I know, it’s such a shame.  However, this score IS here to protect lenders, and by doing that- it protects you the borrower.  Sometimes we need a harsh does of reality to stop us from doing something inherently stupid, and I’ve found that these credit scores do that better than any “come to Jesus” talk from your Mom ever will.

Writing this reminds me of a story from growing up.  My brother, who had recently gotten married, wanted to buy this house that was over 300k.  He came to my parents for advice, and they told him, of course, “absolutely not you can’t afford it.”  And as is typical with children, he didn’t listen and went ahead and applied for a loan.  This was before the housing crash- right before.  He was technically approved for the loan- but his home loan officer either had a little compassion for him or was just a stand out person- and he explained to my brother the numbers and where the housing market was headed.  He showed my brother his credit score, what would happen if he ended up upside down, and why waiting would be wise.  With those number, my brother listened and rented.  Then the housing market crashed, and the rest is American history.

But here’s the thing- what if you’re a business owner, land you need some cash or credit to get the business the stuff it needs? Well, this is what business credit is for.  Business credit is completely separate from your personal credit (and thank goodness).  Instead of running your social security number and checking your personal credit- the business lender will run the businesses tax ID number for a score.  The range for business credit is 0-100- obviously the higher, the better.   The wonderful about business credit is that it will never affect your personal credit score- the two remain entirely different entities.

So how do you establish businesses credit?  By only applying for credit cards or startup loans.  Now here’s the thing- it’s hard to get credit when you don’t have credit, so even if you don’t need the money, it’s good practice to get a loan anyways and pay it off early. This will get you the business credit you need so when you’re a pain point in your business, and you require more cash flow for equipment or more staff- you have access to it.  And after working for the high-risk business loan industry, I cannot tell you how important it is to establish that business credit and keep it high.

During my time in the firm lending industry, it was hard to see these hard working business owners having to take out loans that started at 5k, but by the time it was paid back they had paid the lender 10k- all because they had small business credit and had to go off personal credit- or because both credit scores were reduced.  So- take it from this one- establish your business credit and keep the score high, you won’t be sorry.

 

 

The Reality of Debt Consolidation

For many people, debt consolidation is the light at the end of a very dark financial tunnel.  However, you need to understand that all is not sunshine and roses and you need to understand the ramifications of debt consolidation.  Does that mean you shouldn’t consolidate your debts, no, you absolutely should but arm yourself with information first?  Here is the reality of debt consolidation.

The point of consolidating your debt is too put all your outstanding loans into one place, which includes credit cards, car payments, and various other loans.  It is easier to manage when you have one payment per month, and most of the time the high-interest loans like credit cards see a reduction in the interest rate.  All of these makes it easier to pay everything off sooner and at less cost to you.

Finding the Right Debt Consolidation Company

Here’s is where the struggle lies, there are thousands of companies out there that do debt consolidation.  In fact, since you’ve been thinking about consolidating your debt, you’ve probably come across hundreds of ads.  Picking the right company for your situation is what becomes a major task.  Here is a video showing you exactly how to choose a debt consolidation company.

Like anything else, it is in your best interest to speak with several companies before you choose the one you will work with.  They will all offer you different interest rates depending on the amount of debt, credit score and your assets.  It’s a lot like shopping for a mortgage, and like a mortgage, you want the absolute lowest rate possible.  Your purpose is twofold; pay off your debt as soon as possible and save yourself as much money as you can doing it.

Interest Rates Can Increase

Debt consolidation companies will justify their high-interest rates by the risk of helping you get out of debt.  While this isn’t necessarily a good reason, bear in mind that if you miss a payment without talking to the debt consolidation company first and trying to work out an alternative your already high-interest rate will skyrocket.  You are trying to pay off your debt not make higher interest payments, always make sure that your monthly payments are manageable.  Should something happen, medical emergency, job loss or something of that nature always call your debt consolidation company right away and try and work something out.

Don’t Fall Into the Same Pattern

Once you start paying down your debt and your credit score increases yet again, you will once again be offered credit cards and loans.  Don’t fall into the same trap of debt that you cannot afford, don’t incur new obligations while still trying to pay off the old ones.  If you fall into the credit trap again, you will be right back where you started and this time around debt consolidation will be that much harder.

Debt Consolidation and Bad Credit: What to Do

Lots of people are looking to find their way out of debt and make their budget and their lives more manageable.  They have probably looked into getting a debt consolidation loan. You take all of your current loans and put them into one loan, with only one payment per month.  Preferably at a lower interest rate and smaller payments than what you are trying to juggle right now.  You have a definite end date of when the loan will be paid off instead of a never-ending pile of bills.

But…

What if your credit score is less than perfect?  You want to improve your finances and get back on track, being debt free seems like a dream.  A debt consolidation loan would help you get a grip on your finances and work towards achieving that goal of becoming debt free.  Don’t let your credit score hold you back there are options out there for you.

Qualifying

The biggest fear of having a bad credit score is that you will not be able to get approved for any loan.  If an emergency comes along, you need a new car, or it is time to move to a bigger/smaller home, you may not be taking action because you are worried about getting a loan approved.  Wanting to consolidate your debt with a debt consolidation loan causes the same worry.  Here is some information to help you get the things you need.

Banks or Loan Consolidation Companies

You’re first instinct when you need a loan is to go to the bank, but there are debt companies as well.  Banks, credit unions, and finance companies have stricter criteria when it comes to lending money.  However, if you get turned down by the bank, look into a debt consolidation company.   They have plenty of experience dealing with people who have less than stellar credit.

Be careful of who you work with, not all of them are legitimate companies.  Here are some red flags, if they offer you government money to take care of your debt or they don’t take the time to go over your financial situation with you or try and charge you upfront fees.  Bear in mind that loans that involve bad credit will come with higher interest that will cost you more.  You are however getting out of debt, and you can pay it off sooner when your income increases.

Improve your Credit Score

You can work on trying to improve your credit score before you apply for a loan.  Monitor your credit score regularly to make sure that any changes are positive ones.  Try and make your payments on time as this will help greatly.  Pay down as many past due to credit cards and avoid opening new accounts no matter how tempted you might be.

Final Options

If you cannot get approved for financing with a debt consolidation company, then it might be time to try debt management or debt settlement company.  These are designed to help you pay down your debt within five years, and it is your last resort before bankruptcy.  Bear in mind that there will be a significant impact on your credit score.