Do you own and run your own business? If so, the fear that your business finances can affect your personal finances may have entered your mind a time or two.
Maintaining good credit is more than just having a positive income and cash flow. Your credit can impact your ability to rent a home, attain a loan or even how high or low your insurance is. Good credit also ensures that you receive the best rates and terms, should you need to apply for a loan. If your personal credit is kept up, these things aren’t an area of main concern. The problem occurs when small businesses intertwine finances between that of their business and their personal lives.
Here are a few tips to keep that from happening.
1. Pay Your Bills On Time
This one holds true in both your business and personal finances. Your payment history is one of the most important factors in determining your credit score. Not only do payments made 30 days past the due date hurt your credit, they also come with late fees and other penalties that only increase the amount you owe. If you think you won’t make a payment on time, the best move is to contact your creditor and see what your options are.
2. Keep Utilization Rate Low
Second in importance to your payment history is your utilization rate. A utilization rate is the percentage of credit spent out of the credit available on all of your credit cards. A lower utilization rate is best for your credit score. However, because the balance at the end of each credit card statement is usually the number that is reported to the credit bureaus, you could have a higher utilization rate, even if you always pay off your credit cards on time each month. The best trick to combat this is to pay your credit card balances BEFORE the end of your statement. Doing this reports a lower balance to the credit bureaus.
3. Build Your Business’s Credit
The best way to protect your personal credit is to build your business credit. As your business operates and uses its own accounts to pay its bills, it begins building a business credit that is separate from your personal credit. Just remember that falling behind on payments or insufficient funds can utilimately result in hurting your personal credit.
4. Create a Business Credit Card for Business Expenses
Of all the tips we’ve listed, this is by far the easiest and most important in keeping your business and personal credit scores apart from one another. Opening a business credit card is a simple way to know which account (or accounts) are used specifically for business expenses. Another perk is that the awards associated with business credit cards tend to be more aligned with business expenses than those of personal cards.
Owning a small business is difficult, but it can lead to great wealth and success. Just be sure not to mix personal and business finances from the beginning to keep both credit scores in check.