How Your Credit Score Affects Your Business
People look at credit scores as some sort of indicator of how good they are with money, as if a high credit score means that you are more financially savvy, maybe even that you are wealthier than others.
That’s not what a credit score measures. A credit score measures how much debt you have incurred & how timely you paid that debt off. It’s a score of how “good” you’ve been with credit, not how good you’ve been with money.
A business, especially a small business that has only existed for a couple of years, hasn’t had the opportunity to demonstrate any history of taking on & paying off debt, therefore banks & lending institutions don’t see a relatively new, small business as a good credit risk. So, a lot of small-business owners will, in turn, take some of their personal debt, & they will treat those personal debts as if they belong to the business. So they’ll let the business pay off the credit card. They’ll let the business pay down the car loan.
This doesn’t really help you or your business. The debt is still in your name, it still gets reported under your credit score & your credit history. All it does is move that debt onto your company’s balance sheet. What ends up happening, at the end of the day, is your business — and you — still have all that debt. When you have all that debt, you make both business & personal financial decisions that are in service of paying off that debt.
Taking on that debt is going to shift your mindset away from your target customer & away from developing your business, & toward keeping your creditors happy, which means you’re not going to be making decisions based on what’s best for your business. You’re going to be making those decisions based on what’s best for your creditors.
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