Personal Credit Score and Business; Does it Matter?

Personal Credit Score and Business; Does it Matter?

Many people want to go into business for themselves because it offers them a concept of a better life.

Many people want to go into business for themselves because it offers them a concept of a better life. Whatever the reason people go into business, they might have to get credit cards or loans for their business, but herein the question lies. Does my personal credit score affect my business? The answer to this question is; yes and no, and it depends as it can be complicated.

The good news is we will be going into this subject more thoroughly, so you have the answer to your questions.

What Type of Business Entity Are You Starting?

Your business type that you start will depend how likely lenders will give you a credit card or a loan based upon your business needs. Here are the common business entity types and how they affect your credit score.

  • Sole Proprietorships

Sole proprietorship means you are running the business, but have not registered your business as its own legal entity within your state you live. So in a sense your business operates under your name, and your social security with your credit score.

Lenders won't look at your business finances separate from your own. You will want to have good credit of your own, as if you do need a loan, lenders will consider you personally liable for your business debts.

  • LLC

A limited liability company (LLC) is considered a "pass through entity," meaning that the business results are posted on your personal tax return with a Schedule C from the IRS. However, an LLC has its own tax id called an employer identification number (EIN) in which you can use this to apply for business credit cards and even loans.

However, just because you have an EIN for your business doesn't always mean that lenders won't ask for your own personal information and tax returns, proving proper income.

  • S & C Corporations

There are two styles of corporations, the S-Corporation and the C-Corporation. The S-Corporation acts like an LLC to where it is a pass through entity, but has significant benefits to that of the C-Corporation.

When it comes to C-Corporations, they are treated as a separate entity with an EIN. They have to have their own separate tax filings, but can have their own credit cards and bank loans that are not typically associated with your personal credit score.

When it comes to corporations you can pay to get a business credit rating from Dunn & Bradstreet, Standard and Poor's, or even Moody's. You will be able to build a solid reputation from these companies, but this is typically reserved for larger older corporations.

Tips for Improving Your Personal Credit Score

  • Always Make Payments on Time

35 percent of your credit score is based upon making timely payments, so make your payments on time.

  • Use Your Credit Wisely

There will always be the temptation to max out your credit card, but as a reminder credit bureaus states that if you're trying to increase your credit score, you should keep your usage to only around 15 percent of your available credit line.

  • Use Bill Consolidation

If you are overburden with credit card debt, bill consolidation will help you lower your debt to income ratio and raise your credit score.

Final Thoughts

Your credit score is important depending what type of business you may want to start. If you don't have the best credit, you can always try bill consolidation along with an easier approach to your business working with little to no overhead.

However, if you have a business, you would like to get started right away, and need loans and credit cards that don't rely on your own personal credit score, then you might want to aim for the C-Corporation.

Popular Right Now

At-Will Employees and Wrongful Termination

Did you know that there are reasons you cannot be fired?

 Unfortunately for most of us, having a job is a duty that we face every week. And as employees, we know that getting fired from your job is not ideal for future employment options. However, certain reasons for getting fired are not valid in the eyes of the law and you may have the option for legal recourse.

What is Wrongful Termination?

Wrongful termination can happen for a number of different reasons. According to the San Francisco wrongful termination lawyers at Rukin Hyland, if your employer fired you for one of the following reasons, you might be able to file a lawsuit:

1. Retaliation for taking allowed vacation, sick time, breaks, pregnancy leave, or filing a workers’ compensation claim

2. Retaliation for reporting illegal activity or some type of safety or ethical violation

3. Breach of an employment contract, either written or spoken

4. Discrimination for beliefs, gender, race, or age

There may also be instances where a job is made so miserable and intolerable by an employer that the employee has no choice but to quit. This is called constructive discharge and is treated the exact same way as a wrongful termination claim so employers cannot force you out of a position without ever actually firing you.

At-Will Employment

Although the above criteria may seem straightforward, it can become a little less clear if the employee is an at-will employee. Most employees in the United States are at-will, meaning that your employment can be terminated without warning or cause. Just as an employee can give their two weeks’ notice without providing a reason, so too can employers fire their employees without a concrete reason. Most of us signed some form of contract during our first week of work stating exactly this point and even if you chose not to sign the contract, most courts will still decide in your employer’s favor.

Therefore, although the idea of wrongful termination and at-will employment exist side by side, they seem to directly conflict with each other. One says that there are reasons that you cannot be terminated, while the other says you can be terminated at any time. 

At the end of the day, it all comes down to the ability to prove the reason you were fired with concrete evidence. An employer may very well fire you because of your gender, religious beliefs, or in retaliation for taking too many sick days, but if there is no evidence to support that claim, then your case will not hold up in court. In fact, many employers are smart and will not give you a reason for your firing because if your case does go to court, they do not have to worry about contradicting anything that they may have said. 

Because of this, it is imperative to document and collect as much evidence as possible. Did your firing come after a specific or controversial event? Was your performance up to standard and you were still fired? These are all great questions to ask yourself if you believe you were unlawfully terminated. If you have proper evidence and can defend your claim, speak with an attorney and see if they can validate the merits of your case.

Related Content

Connect with a generation
of new voices.

We are students, thinkers, influencers, and communities sharing our ideas with the world. Join our platform to create and discover content that actually matters to you.

Learn more Start Creating

Before You Get A Pet In College, Make Sure You Have A Home To Give Them

It's not fair to get a pet if you can't give them a good home.

Since starting college, I've seen countless students and peers with pets — everything from dogs to cats to reptiles to pigs. Some of them have been service or support animals, others were just pets! Luckily, all the ones I've seen have been well-loved and well taken care of. However, there have been some stories I've heard of people — especially college students — getting pets on a whim and not being able to properly take care of them or offer them a stable home. In these cases, the pets are not well-taken care of and are passed from person to person without any stability or given to a shelter.

This is such a sad reality for thousands (if not more) animals and pets and something that has made me hesitate to get a pet myself while I'm in college. As much as I want a dog or cat right now, I know I'm in a fairly unstable situation being in college. I've moved to different apartments and houses every year, I often spend the majority of the day away from my apartment and on campus, and I don't have a lot of spare time to give to a dog or a cat.

And most of my funds are going toward college and books — there's not a lot of extra money to spend on necessary things for pets such as vet bills, food, toys, etc. As much as I know I'd love and care for a pet right now, I also know it wouldn't be fair to them to welcome them into a home that is constantly moving and often empty for hours at a time. When I get a pet, I'd like to be confident that I would have the time and the life stability to give them the best possible life they could have.

I'm not saying that everyone who has a pet in college isn't being responsible or are not providing a great home for their pets — many people are! I'm only saying that it's important to take into consideration all of the responsibilities that come with owning a pet before actually getting a pet. As great as it would be for you to get a dog or a cat, you've got to remember that this will be a huge change for not only you but for the animal you welcome into your life.

You want to give them the best possible life you can, which means taking care of them, giving them a safe and happy home, providing them with the supplies they'll need, and spending time with them.

So, before you get a pet in college (or any time), make sure you're providing them with a good and stable home.

Cover Image Credit: Pixabay

Related Content

Facebook Comments