Business credit can be confusing, especially when you compare it to personal credit, which most of us are more familiar with. This article debunks some prevalent myths surrounding business credit so you can get a clearer picture of it. Here’s the real deal on some myths you might have heard.
Myth #1: Business Credit and Personal Credit Are the Same
You might think business credit works like your credit score, but that’s not entirely true. Yes, both types of credit keep track of how reliable you are with money, but there are significant differences in how they’re managed and corrected when there’s a mistake. For example, fixing an error on your credit report can be a real headache and sometimes unfair.
There have been cases where credit bureaus didn’t fix errors even after being told to by a court. Business credit, on the other hand, is a bit friendlier. Mistakes are less common and more accessible to fix when they do happen. The business credit system is designed to be more equitable, not inherently biased against businesses or consumers. It generally exhibits a lower incidence of errors, and when mistakes do occur, rectifying them tends to be a more straightforward process.
Myth #2: Using Personal Credit for Business Purposes is Harmless
Some people think using their credit cards or loans for their business is no big deal. But this can lead to trouble. If you use your personal credit for business expenses, you might max out your credit lines and not have enough credit available for personal use or emergencies. Plus, you could be stuck if your business needs more credit than you can get personally. Mixing personal and business credit can make things messy for your personal finances and your business’s growth, which is not a good idea.
Myth #3: Business Credit and Personal Credit Are Not Related
While keeping your business and personal credit separate is best, they’re not entirely unrelated. Particularly in the early stages of establishing business credit, it’s not uncommon for business owners to provide personal guarantees for business loans or credit lines. This means that if your business can’t pay back the loan, you’re on the hook, and it could hurt your personal credit. Even though the business loan doesn’t show up on your personal credit report, any problems with paying it back can affect your personal credit score. Therefore, careful planning and wise use of business credit can help you avoid this scenario.
About the Author
Robert Jackson is currently the CEO of Alln4fam Consulting Inc.
At Alln4fam Consulting, he specializes in helping business owners establish excellent business credit scores and then leverage those scores to access cash and credit for their businesses.
For more information on business credit scoring, business credit, visit: https://alln4businesscredit.com/
