You have surely heard of the importance of having good credit on a personal level since it allows you to achieve goals and dreams that would be more difficult without good credit, such as buying a house, a car, and obtaining loans to travel or study, among many others. Likewise, at a commercial level, it is essential to have good credit since it is advantageous for the entrepreneur. On the other hand, maintaining good personal credit is also important to help your business. Here we explain how to establish good personal and business credit and the advantages for your business.
Personal credit
Personal credit depends on credit reports from the major consumer credit bureaus: Equifax, Experian, and TransUnion. There are currently multiple online platforms where you can view and monitor your credit reports and obtain reports directly from these credit bureaus.
Once you get a loan or credit card, creditors (credit card issuers and lenders) report your account information to credit bureaus. These reports consider your payment history, credit longevity, the number of loans and cards you have, and your total credit compared to the amount of debt, among other factors. All of these factors combined give you your FICO® Score. A FICO® Score is a three-digit number based on information in your credit reports. It helps lenders determine how likely you are to repay your loan, line of credit, or credit card on time. This, in turn, affects the requested amount, the loan term, and the interest rate you get.
To establish good personal credit, we recommend that you take the following steps:
- Get a credit card or loan that is reported to the consumer credit bureaus.
- Make payments on time, as this will greatly impact your FICO® Score.
- Use no more than 30% of your available credit in revolving accounts, as this also impacts your credit score. Remember that, even if the card or line is at $0 balance, it is taken into consideration that you can use it at any time.
Commercial Credit
Business credit is built in much the same way as personal credit. Once a business is established as a limited liability company (LLC) or corporation, it can also develop its own business credit.
Like personal credit, a business’ creditors and vendors can report your accounts and payments to business credit reporting agencies, which then create credit reports for them.
To establish good business credit, we recommend that you take the following steps:
- Set up a business structure (such as an LLC or corporation).
- Open credit and term accounts that are reported to commercial credit bureaus.
- Make your loan payments on time.
- Make payments (net-term) on time or earlier.
How can good credit help your business?
Good business credit can be very beneficial for your business, as it can help you obtain more favorable business loans and lines of credit. It can also help you get lower business insurance rates and longer terms from vendors and providers.
On the other hand, to qualify for some government and corporate contracts, credit evidence of the company is required because without this, they do not even allow you to bid.
Likewise, suppose you want to expand your company and need to raise money from investors. In that case, your company’s credit will be a fundamental factor that investors will consider when making a decision.
Remember that maintaining good personal credit is a key factor, especially if you will be the guarantor of the commercial credit you request.
Also, if you wish to expand your business and need to raise money from investors, the credit of your business will be a fundamental factor that the investors will take into consideration when making a decision.
If you need help or guidance with any financial aspect of your business, at Oriental we are more than ready to serve you; please access orientalbank.com.
