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EduJay's tips, tricks, and best practices in leadership, learning, and personal and professional development.

Keeping Your Business Credit Separate From Your Personal Credit

Much like becoming an independent adult, you will need to establish a credit history for your new business. Many of us solopreneurs don't know that you have two credit profiles: one for your personal history and one for your business.


The guidance I offer anyone looking to go into business for themselves is to maintain that separation of church and state: keep your personal credit independent of your business credit. Shop for business credit products that do not require a personal guarantee upfront in order for you to be approved for the business credit line. This keeps the business credit inquiry from showing up on your personal credit report, which can cause a short-term ding on your personal credit account. This isn't to say that you avoid personal liability in the event your business defaults on payment -- some personal guarantees apply in this case -- but avoid the guarantee upfront helps to keep your personal credit clean.


Naturally, starting out, you may need to provide a personal guarantee for your first few business trade lines if you have not been operating long, or your revenue is lacking. And that's OK. Be judicious in your applications and only apply for the few credit options you need. Once you have established a business credit score, future approvals will become easier.


Here are a few pointers for getting started:


Start with your personal bank: Lots of us solopreneurs began doing side work as sole proprietors before we took the step to form a corporation. If you have a long-standing relationship with your bank, a banker may be able to help you navigate the underwriting process and help you demonstrate that even though your corporation is new, you have a proven track record of revenue as a sole proprietor.


Know your business credit score: There are several personal credit scoring sites available, such as Credit Karma or score reports through your financial institution, but did you know you can find your business credit report basics, for free, through Nav.com?


The higher your personal credit score and income, the easier it is to be approved for business credit: This is pretty self-explanatory. If your personal profile shows you have the ability to pay and you have a strong track record of doing so, banks are more willing to take a chance on you with business credit, which is riskier than personal credit.


Juice those credit limits: You'll likely begin your business credit journey with a couple of cards secured by a personal guarantee. Instead of going on application sprees, nurture those couple of cards while your revenues grow. In the interim, be assertive in requesting credit limit increases. Be sure to ask if it will count as a hard or soft inquiry, as soft inquiries do not affect your credit score. Once lenders see other banks trust you with higher limits, they are likely to follow suit.


Business credit, like personal credit, as a game that can be played to your benefit if you know the rules. Banks are here to make money. So, too, are you, so manage your credit wisely.

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