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How to Separate Your Personal and Business Credit

Mar 4, 2008
You're a new business owner and decide you need items and services for your business. You take out a loan and your business is off to a great start. A few months pass by, so you take out another loan or open more lines of credit for necessities. You repeat this process a few times during the year. You're trying to be a good business owner by growing your business but you're making a critical mistake. You're using your personal credit for your business. This is bad. It's very bad and you're courting disaster. Let me tell you why.

Most people only take out a major loan once a year. How does it look to the credit agencies if you're taking out several major loans per year? It looks bad. It looks bad enough for the three major reporting agencies to lower your personal credit score. Once that happens, you're going to find it harder to quality for loans with favorable terms or open up new lines of credit. If your business is dependant on you being able to borrow money then you my friend are in serious trouble. Not only will your business be in trouble but your personal life is now tied to your business. Are you going to qualify for that home loan if there are loans for expensive equipment on your credit report? I think yourre going to lose that house, the new car, and the college loans for your children.

So what's the solution? The solution is to stop using personal funds and credit to use with your business. Let your business earn its own credit and leave your personal credit alone. Ok, it sounds like a good solution but how do we do that? We make your business its own business entity. We split you and your business into two different entities. You still control your business but your business becomes it's 'own person' with its own credit and responsibilities.

By incorporating your company, you give it the legal right to take on lines of credit, apply for loans and to build its own business credit. After this you enroll in a business credit builder program. A business credit builder program helps you open up lines of credit with vendors. These vendors (unlike many) report your positive actions to business credit reporting agencies like Burns and Bradstreet. Many business don't know that many vendors only report negative actions and never report positive payment histories. That hurts you and never helps your rating. When vendors participate and send in positive reports your rating improves.

It really is the smart thing to do. With a high business credit, you'll be able to take out loans with favorable terms. Not only will you save money but you'll find it less likely to have to personally guarantee the loan and put your assets at risk. Businesses can do credit checks on you and will tend to choose high rated businesses. That's more customers for you! It's really win-win all around.
About the Author
Scott Letourneau is the CEO of NCP, Inc. and is offering free business credit training to interested business owners across the country. For a webinar 90 minute class where Scott corners a national bank offical and askes the "Hard Questions" visit http://nvinc.com/business-credit.htm
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