There is a common concern among entrepreneurs hoping to start a business – getting approved for a loan. And one of the key factors in getting the loan approval you need is having a good credit rating. Keeping a good credit history and having your finances in order may not be at the top of your list when it comes to starting a business, but in the end, it will make the process a lot smoother.
Unless you’ve inherited the wealth or started your entrepreneurial journey after a season of significant financial prosperity, chances are you will need to borrow money at some point. Taking out a business loan can seem daunting and uncertain, especially if you’ve never borrowed money before. Fortunately, you can build strong credit over time that prepares you for success, and implement proven strategies to maintain your credit as an entrepreneur.
Here’s how to create and maintain good credit.
Prioritize your personal credit
Michael Chancellor, a credit expert who spends his days rehabilitating people’s scores and maintaining their records, says many credit problems can be solved by focusing directly on the basics.
If you are just starting out, make sure that you are building your personal credit. Start early if you can, or start now if you postponed it. Some people shy away from opening a credit card to avoid debt, but a well-maintained line of credit is essential to getting the loan you need to start your business. And remember: time matters. Build a reliable history of your accounts over time and watch your personal credit score soar.
Already established? Clearly delimit business and personal expenses
If you’ve already started your entrepreneurial journey, make sure your business expenses are kept separate from your personal finances. This includes writing a lunch with a friend because you’ve been chatting about your business for a few minutes. It’s important to set limits and stay honest so that you can keep all of your finances on top of the edge.
Additionally, make sure your business is registered as an LLC which will ultimately help you as your business grows, especially as tax season approaches. Having a separate business credit account will help you establish long-term credit in your business name and ensure that you keep accurate records of your business and personal expenses.
Likewise, you need to create a separate bank account for your business and also open any other credit cards under that business. It can help to track expenses and separate them from your personal finances when calculating taxes and other financial elements of entrepreneurship.
Follow the 30% rule
More than anything, remember this: keep your credit usage below 30%. This means that regardless of your credit limit, only spend 30% or less on each card. If your credit limit is $ 1,000, you should aim to limit your spending to $ 300 per month on the card. Your personal credit score is an essential first step in starting your entrepreneurial journey – make sure you treat it as such.
Make sure you pay everything on time. It seems obvious, but having a payment history on time is essential. If you’re worried about forgetting, set up automatic payments that will ensure the minimum payment is paid on time each month.
If you’ve stopped using a credit card, think twice before closing that account. The number of open accounts can affect your credit score, so make sure you know what you are doing before you close it.
Likewise, watch your credit score. Many banking and credit card apps give you an update of your credit score every month. Take this into consideration and watch it for any unexpected changes.
Whether you need personal or business credit advice, find an expert who can help you make the best, most informed financial decisions. Remember this: it is better to start strong than to have to fix problems later.
Having a good grasp of tax responsibility will allow you to take risks and secure future loans to grow your business.