Although you should keep your personal and business credit separate, there are times when your score impacts your company. To run both areas of your life efficiently, you should strive to keep both scores as high as possible.
Being a solopreneur means you run your business alone, and the sole responsibility falls on your shoulders. According to the Global Entrepreneurship Monitor’s 2019/2020 global report, there are more than 500 million entrepreneurs worldwide. Not all are solopreneurs, of course, but many are.
As the sole employee in your small business, your personal credit score paints a picture of your organizational skills and ability to handle money. Here are some ways it can impact your company.
Table of Contents
1. Getting Loans
If your company is new, a bank doesn’t really have a credit history to go on. It needs to see if you pay your personal bills and look at your credit score as part of its decision to offer you a business loan.
A credit score under 650 may impact your ability to secure financing for your business. Some suppliers may look at your personal records as well, so you may wind up on a cash-on-delivery basis with some of your vendors.
2. Fixing Errors
If your credit score falls below 650, try not to despair. There are many ways of repairing it and getting it where you need it to be. Your first task is looking for any reporting errors. Are there late payments you know weren’t late? Perhaps fraud occurred, and there are things on your report you didn’t instigate.
Pull your credit report from the big three: Experian, TransUnion and Equifax. Go over each one carefully. Dispute any errors with proof you have that the information is incorrect.
3. Organizing Paperwork
How organized you are with your own finances spills over into your business operations. Spend time on your personal accounting system, so you are already familiar with what you’d like to use for your company.
A well-organized business is often much more successful than a disjointed one. Think about how you want to save files. Do you plan to keep everything in the cloud? Perhaps you have separate files for different types of receipts.
If you’re not skilled at organization, enlist the help of a family member or professional to set up systems. Get in the habit of filing things immediately, so you don’t grow overwhelmed with paper.
4. Showing Reliability
Lenders want to know borrowers are reliable. Their concern is about more than just your ability to repay a loan. They also want to know you can handle making payments on time.
Your personal credit history shows whether you take deadlines seriously. Regular payments on your mortgage and car loan show you can pay at regular intervals for long periods.
5. Improving Bad Situations
Lenders do look at more than just a credit score when choosing whether to give you a loan. You can turn a bad credit situation around by showing you have ample business revenue and have made other payments on time.
If there are periods on your credit report showing late payments, you can write a letter of explanation with your application. Explain what was going on, such as a job loss or major medical bills, and how you’ve fixed the situation. A bank may be willing to take a chance on you if it sees it was a one-time occurrence and you typically pay your expenses.
6. Offering Collateral
First, never mix your personal belongings with business. It’s a bad idea to use your family home as collateral to fund an expansion. However, your company may have collateral you can use to leverage funds.
Do you own a warehouse, for example? Perhaps some of your equipment is worth money, and you could put that up as a guarantee of repayment. Think about what your business owns that might be worth something to a bank. If it asks for collateral, you’ll be ready with a quick answer.
Make it clear your personal belongings will not be part of the financing. You can always find angel investors or run a fundraiser before putting your own life on the line.
7. Overcoming Stress
If your personal credit score is in shambles, you may be too stressed to give your company the attention it deserves. As a solopreneur, your business and personal time often become entwined. You may even run operations out of your home.
In a Harris Poll and American Psychological Association survey of 3,013 adults in the United States, researchers found stress levels are on the rise. They reported 70% of adults worry about the economy, a number up from 46% in 2019 or pre-COVID.
Stress impacts everything you do in your business and personal life. If your finances are a major stressor, it’s time to take control and reduce the impact. You’ll be more productive and bring in more income.
Personal Credit Matters
While there is separation between business and personal credit scores, many lenders do take both into account. If your personal credit isn’t everything you’d like it to be, it’s easy to begin cleaning up your score.
Reduce outstanding debt, make payments on time, fix any errors on your credit report and watch your numbers rise month after month. With a little effort, your personal score will no longer be a concern. You’ll thrive, and your business will follow suit.
Lexie is a digital nomad and graphic designer. If she’s not traveling to various parts of the country, you can find her at the local flea markets or hiking with her Goldendoodle. Check out her design blog, Design Roast, and connect with her on Twitter @lexieludesigner.
About Carson Derrow
