Blog post by: Help me Build Credit

People tend to think that personal credit and business credit are in no way connected. These are the same people who don’t put effort into building their personal credit because they say it’ll barely come to use. They think business credit will come in handy soon enough, but personal credit is ok to do away with.

What you must realize is that building credit as soon as you turn 18 (or you can start building credit even before you turn 18 by being added as an authorized user on someone else’s credit card aka piggybacking credit), is important and so beneficial for your future. Even more, it’s directly linked to business affairs, such as when taking a business loan. 

You need personal credit for taking out a business loan.
You’d never think that, right? Let’s talk about it.

Business loans and personal credit

At anytime throughout your business career, whether at the start or right in the middle, you may want to get a business loan or a business credit line at Equire Inc. 

Unless your business is a huge firm, banks and credit lenders will be hesitant to hand out a loan to your business. Statistics show that way over 22,000 businesses went bankrupt within the year 2019. Banks are afraid to hand out loans without knowing you’ll have the means to repay it. So, assuming you’re not a huge company, though wishing you much success in getting there, you need a way to prove yourself worthy of getting a business loan.

The only way a bank or lender will trust you enough to give your business a loan, is if they check your personal credit. That is why you need to start building credit at 18.
Once the lender reviews your personal credit history, credit accounts, and so on, and they’re pleased with what they see, they earn trust in you as an individual. They can then assume that the same credit responsibility goes on with your business affairs.

Turns out, your personal credit is your only way to a business loan.
Happens to be, lenders will do the same, check your personal credit, when you apply for a business credit card.
If you’ve got no business credit and bad personal credit, it’s highly unlikely for you to get approved for a business loan. The lenders need at least for your personal credit to be good.

When will I be eligible for a business loan without personal guarantee?

There will be a time down the line when you will be eligible for a business loan without personal guarantee, that means keeping your personal credit out of the business. 
Usually, if your business has several million dollars in sales and has healthy cash reserves, the bank and lender will start trusting your business and give it liability without a personal guarantee.
At that point in your business, you can get business loans without having your personal credit checked.

How to build good credit

In the meantime, until the millions start pouring in, here’s how to build good credit so that you can be eligible for business loans and credit lines with your personal credit only.

1. Have 2-3 credit cards open. You need a substantial number of credit cards to show you’re credit worthy and can handle it. 2-3 is a fair and average amount.
2. Keep your credit card balances low in proportion to the credit limits on your cards. The balance on a card should ideally be less than 9% utilization, that’s using less than 9% of your credit limit allowance. If 9% is not possible then try to stay at least below 29%. 
3. Stay clear of late payments. A late payment will go onto your credit report and be a credit eyesore.
4. Have a mix of revolving credit lines and loans; a mix of credit cards and mortgage or auto loans.
5. Never close your first and oldest credit card. As more time elapses from when you open your first card, the more credit history you acquire, and the better your credit is.

Read about the famous TD Business Loan.