5 Myths About Your Business Credit Cards Credit Score

You may be surprised by what you don’t know about your business credit cards credit score. There are so many things misunderstood about business credit in general.  What it is, how you get it, and even what it means are all areas of confusion for many business owners.  It’s no wonder.  With terms being thrown around such as personal credit, business credit, credit report, business credit report, fundability and more, it shouldn’t come as a surprise that true understanding is just out of grasp of many.  Let’s clear it up by debunking the 5 most common business about business credit. 

Do You Really Understand Your Business Credit Cards Credit Score?

There are many myths surrounding business credit.  These range from how you actually establish business credit to how much your business credit cards credit score actually matters.  

Myth #1: Just Because It’s a Business Card, Doesn’t Mean It Affects Your Business Credit Score

One of the most prevalent myths about business credit cards credit score is the idea that if you have a credit card that is designated as a “business” card, it is helping you build business credit.  In reality, this may or may not be true. 

It’s actually more about the information on the card application than the card itself.  If you apply for the card with your personal information, it is going to report to your personal credit.  Even if you use your business name, or a DBA, but your personal contact information and Social Security Number, this will still be true. 

Check out our best webinar with its trustworthy list of seven vendors to help you build business credit, even in a recession. 

That leads us to our next myth. 

Myth #2: Business Credit is Built the Same Way as Personal Credit

You have to intentionally separate your business from yourself as the owner before you can build business credit.  Just using credit cards with your business name on them will not do it. This is, of course, contrary to how personal credit builds. 

How do you separate your business from yourself? 

Separate Contact Information

Your business needs its own phone number, address, and email address.   You don’t need to get a separate phone line or even a separate location.  You can still run your business from your home or on your computer.

In fact, you can get a business phone number that will work over the internet instead of phone lines. It’s called VoIP, or voice over IP. The phone number will forward to any phone you want it to so you can simply use your personal cell phone or landline if you want.  When someone calls your business number, it will ring straight to you. 

You can use a virtual office for a business address. It’s a business that offers a physical address for a fee. Sometimes they even offer mail service and live receptionist services.  Some offer meeting spaces for those times you may need to meet a client or customer in person. 

Get an EIN

You need an EIN. This is a number for your business that works in a way similar to how your SSN works for you personally.  You can get one for free from the IRS.

Get Incorporated

Incorporating your business as an LLC, S-corp, or corporation is essential.  It lends credence to your business as one that is legitimate. It also offers some protection from liability. 

The best thing to do is talk to your attorney or a tax professional about which option to choose. Just do it fast, because some lenders consider your time in business to start at the time of incorporation.   

Open a Business Bank Account

This is also something that needs to be done ASAP.  The main reason is, if a lender does not consider incorporation to be the starting date of the business, then they will consider the date the business bank account was opened. A separate account for business transactions will help you keep track of business finances.  It will also help you keep them separate from personal finances for tax purposes. 

There’s more than that too.   There are several types of funding you cannot get without a business bank account.  Often, lenders and credit card companies want to see one with a minimum average balance.  Also, you cannot get a merchant account without a business account at a bank. That means, you cannot take credit card payments.  

Myth #3: If Your Credit Score is Good, Nothing Else Matters

While your credit score is definitely important, it isn’t the only thing that lenders look at.  In fact, it is only one piece of the picture.  Lenders look at the total fundability of a business.  Here are some things that they may consider in addition to credit score. 

Continuity of Business Information

Lenders are looking for a great credit score.  Unfortunately, it’s not all that hard to fake one and commit fraud in an effort to get a loan.  For this reason, lenders tend to throw out any application that throws up any red flags for fraud, including those that have high credit scores associated with them.

One of the most common of these is inconsistency in business information. Something as small as using an ampersand on your business license and the word “and” on incorporation papers or even insurance documents, can cause you to be denied.  Be certain also any address changes are changed everywhere.  Phone numbers can cause the same problem if they change.  All business information has to be consistent across the board. 

Financial Statements

Both your personal and business tax returns need to be in order.  Not only that, but you need to be paying your taxes, both business and personal.  

Check out our best webinar with its trustworthy list of seven vendors to help you build business credit, even in a recession. 

Business Financials

It is best to have an accounting professional prepare regular financial statements for your business. Having an accountant’s name on financial statements lends credence to the legitimacy of your business. If you cannot afford this monthly or quarterly, at least have professional statements prepared annually. Then, they are at the ready whenever you need to apply for a loan. 

Personal Financials

Often tax returns for the previous three years will be all you need.  Get a tax professional to prepare them.   Other information lenders may ask for include check stubs and bank statements, among other things. 

Bureaus

There are several other agencies that hold information related to your personal finances that you need to know about.  For example, FICO.  Your personal FICO score needs to be as strong as possible. Almost all traditional lenders will look at personal credit in addition to business credit. 

In addition to FICO reporting personal credit, there is also ChexSystems.  In the simplest terms, this keeps up with bad check activity and makes a difference when it comes to your bank score.  If you have too many bad checks, you will not be able to open a bank account.  

Even things you may not ever think about in terms of lending approval come into play here. Have you ever been convicted of a crime? Do you have a bankruptcy or short sell on your record?  How about liens or UCC filings? All of this can and will play into your ability to get a loan. 

Application Process

First, consider the timing of the application.  Is your business currently fundable?  If not, do some work to increase fundability.  Next, are your business name, business address, and ownership status all verifiable.  Lenders will check into it.  Lastly, make sure you choose the right lending product for your business and your needs.  Do you need a traditional loan or a line of credit?  Would a working capital loan or expansion loan work best for your needs?  Choosing the right product to apply for can make all the difference. 

Check out our best webinar with its trustworthy list of seven vendors to help you build business credit, even in a recession. 

Myth #4: If You Have Good Personal Credit, Business Credit Is Pointless

While you may be able to fund a business on personal credit alone, it isn’t a good idea.  There are a few reasons for this. The most obvious is, if your business goes belly up, you are personally liable for the debt. 

That means you could lose your house or your car.  There’s still more however.  If you use your personal credit to fund your business, you are likely going to hover near your credit limits.  That will increase your debt-to-credit ratio substantially.  In turn, your personal credit score will take a serious hit. That will impede your ability to buy things like a home or car. 

If you have business credit, you will be able to fund your business without any of that debt being reflected on your personal credit report.  

Myth #5: Paying On-Time is All that Matters

When it comes to your business credit cards credit score, paying consistently on-time is definitely key. However, it isn’t the only thing that is important.  For example, if you do not have your business set up as mentioned above, there will be no business credit file to report payments to.  Also, most business credit cards will not extend credit on the merits of your business alone without you first having a business credit score.  This makes it difficult to build a business credit cards credit score without having a business credit score in the first place.  It’s a vicious cycle. 

There are certain vendors, called starter vendors, that can help with that.  They will extend invoices with net terms, and then they will report the payments on those invoices to the business credit reporting agencies.  Once enough accounts are reporting on-time payments, you have the start of a strong business credit score. 

Also, you need a D-U-N-S number. This is the number that Dun & Bradstreet uses to enter your business into their system.  Since D&B is the largest and most commonly used business credit reporting agency, if you aren’t in their system, you may as well not have business credit. 

Business Credit is Often Misunderstood

There are many myths about business credit.  It is hard to wade through all of the misinformation and get to the truth.  Hopefully, this will help you better understand your business credit cards credit score.

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