Top Business Credit Myths and Misconceptions – Debunked

Personal credit score plays an important role in our lives. Whether you need a car loan, mortgage, or other types of personal loans, your credit score defines your fate. But business credit is often overlooked even if you are an entrepreneur and have been running your side hustles for years.

A good business credit score can open doors to opportunities for you. But before you start building your credit profile, it’s important to explore what business credit actually is.

The prevalent business credit misconceptions often make it difficult to improve your credit score. So, let’s dive into the topic and debunk common business credit myths:

Myth#1: I Don’t Need to Build Business Credit

It’s a tempting thought to rely on your personal credit for business loans and funding. But have you ever heard of a CEO putting their own assets on line when their business needs additional funds?

No, right?

That’s because they focus on building business credit. So, when they need to provide a guarantee to creditors, they can present the credit profile and history of business performance instead of risking personal assets.

One of the important business credit facts is that you need to establish credit regardless of how small your business is. When you separate your personal and business finances, you can avoid pitfalls in the long run. Also, this will help you access better financing options so you can expand your side business with ease.

Myth#2: Business Credit is Useless for a Side Hustle

Another widespread business credit misconception is that business credit is only for large corporations. But this is far from the truth.

Even if you run a small business or have a side hustle, you are eligible for business credit.

So, the best strategy is to treat your side hustle as a full-fledged business venture. This means you should focus on building a good credit profile from day one.

You can grow your side business into your main business over time. And when it does, you would need business credit to apply for loans, negotiate better terms with vendors, and get the best insurance premium rates. This is when a good credit history will pave the way for success.

Myth#3: Business Credit is Only Important When Seeking Loans

There is no denying that a good credit score and credit history can help you secure loans at suitable terms. But this is only one aspect of its benefits. Its influence reaches far beyond funding.

Business credit can be your key to unlocking favorable trade terms. It helps build credibility, projecting your venture as a reliable player in the market. Whether you are looking to attract business partnerships or negotiate conditions with suppliers/vendors for your business, this will offer you an edge.

Also, it enables you to access higher credit limits and opens doors to growth opportunities.

When it comes to business loans and business insurance premiums, you have better chances of getting lower interest or insurance premium rates thanks to a good credit profile.

Myth#4: All I Need to Do is Pay My Bills on Time

Paying your bills on time is crucial for establishing business credit. But it’s not the sole factor shaping your credit score.

It’s important to get a deeper understanding of factors that affect your credit score. Let’s take a look at our handpicked expert tips to improve business credit:

• Apply for loans or credit only when you need to
• Regularly check your credit reports
• Make sure your creditors and vendors report transactions to a suitable credit bureau
• Don’t apply for too many credit cards or lines of credit
• Keep your credit utilization rate below 30%

Myth#5: Personal Credit and Business Credit Work the Same

Another business credit myth is that personal and business credit reporting work exactly the same.

Yes, they do share some similarities. However, they also have certain distinct characteristics that you should be aware of.

Personal credit is connected to you by your Social Security Number. Business credit, on the other hand, is linked to your Employer Identification Number (EIN). The former is reported to Equifax, TransUnion, and Experian. Whereas the latter is reported to Equifax, Dun & Bradstreet, and Experian. Further, the range for personal credit score is 300-850, while that for business credit is 0 to 100.

So, treating both as separate entities will allow you to wield each to its full potential.

Myth#6: Payments Are Automatically Reported to Credit Bureaus

You may have good financial behavior and always pay your bills on time. But do you believe the business credit myths that timely payments are automatically reported to credit bureaus?

Then let’s debunk this myth and learn about business credit facts.

Not all creditors and vendors report to business credit bureaus. Or it’s possible they may not know which is the correct bureau they should use for reporting payment information.

Thus, you need to check your credit reports regularly. Make sure the information is up-to-date and contact the right bureau in case there are any issues with your report.

This way, you can stay on top of any potential reporting discrepancies and maintain an accurate credit history.

Myth#7: Establishing Business Credit is a Lengthy Process

A myth that deters many entrepreneurs and people running a side hustle is that building credit is an extremely difficult process.

The task may seem challenging at first. But you can improve your score by breaking it into manageable steps. First, you should choose the right business structure. Then apply for your EIN. Next, get a separate bank account and credit card for your business. Now pay your bills early and regularly monitor the credit report.

Remember, patience and persistence are key in this journey. It may take time, but each diligent step will contribute to the foundation of your business’s financial reputation.

Building business credit is a crucial step in securing your side hustle’s future. It offers financial protection, credibility, and growth opportunities for your venture.

So, forget the business credit myths and explore facts. With this knowledge, you can unlock the true potential of your side hustle and take it to new heights of success.