Keep business credit separate from your personal credit

For many entrepreneurs and solopreneurs, it’s common to create a business with personal financial resources.For someone with a solo business and no employees, it’s especially tempting to use  business financial resources as  personal financial resources. After all,income is  family’s income. It all goes to the same place, so it doesn’t matter if it’s a little mixed up, right?

Actually, it does matter. Keeping your business finances separate from your personal finances is important if you want to make things easier for you, and reduce trouble come tax time.

Protect your personal finances from your business setbacks

When you first start with your business, your personal assets do matter. You might need to use your own capital for startup costs, and there is a good chance that your personal credit will be used in the decision to extend your business credit for the first time.

However, as your business grows, it’s important better define the line between you and your business. There is a level of protection for your personal finances when they are separate from your business finances.If your business is structured properly, and your finances are separate, a setback for your business doesn’t have to become a setback for your personal financial situation.

A good example of the importance of keeping your personal and business finances separate comes from Robert Kiyosaki, the author of Rich Dad, Poor Dad, and the owner of multiple businesses. When one of his companies announced bankruptcy a couple of years ago, his own personal fortune was protected. Even though one of his businesses had financial issues, the fact that Kiyosaki kept things separate meant that his own individual resources weren’t impacted.

This can even apply in the event of a lawsuit. If someone sues your business, and it is properly organized and legally separate, your personal assets might be protected from the consequences of the litigation. 

The same can be applied to credit. As your business grows and develops its own credit history, you can separate your personal credit from your business. That way, if something happens to your company, and your business credit is tarnished, it won’t have as big an impact on your personal situation. The protection can work both ways; you can protect your business finances to some degree from your personal financial setbacks when you keep your business credit separate.

Consult with a knowledgeable business organization expert, attorney, or accountant as you work toward creating a separate financial profile for your business. 

Better records for your business

Another good reason to keep your business credit separate from your personal credit is for record keeping purposes. If you use your personal credit card to purchase business supplies, it’s harder to show the separation, especially if your business purchases are buried on a receipt with several personal expenses. What happens if you are asked to show documentation during a tax audit, or for some other reason? Using your business credit for business purposes and keeping it separate from your personal financial uses can help you quickly and easily track your expenses.

It can also make record-keeping easier for your own purposes. Keeping track of payroll, business purchases, and other overhead costs is much easier when you have separate accounts for business. You can quickly and easily track spending trends and plan for the future when you maintain separate accounts. 

Build business credit 

Building business credit is often difficult. Initially, you will be required to provide personal information, and you might need to a personal guarantee a business credit or loan. However, once you have your first business credit account, do what you can to build a credit profile for your business. Using your business credit card wisely, and not overdrawing your business checking account, can help boost your business credit reputation.

As your business establishes its separate credit profile, eventually it will be able to get credit without your personal guarantee.

Even if you operate as a sole proprietorship, it can make sense to at least open a business bank account and use it for income, and for business expenses. You can “pay yourself” out of your business account, and that will also create another layer of record-keeping that can serve you well at tax time. 

Even though you feel like you are your business, especially at the start, it’s vital to build those walls,. It makes things easier for you, and it can also provide your personal finances with protection against business catastrophes.

Maintain your credit profile with a good credit score. Visit www.cibilconsultants.com

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Secured cards help in building your score

Getting credit nowadays is becoming a much harder task. Lenders take a look at CIBIL reports before giving out loans and credit cards. And thus, the people with lower credit scores get stuck since nobody is ready to provide them loans due to their lower scores. So what possibly could be a good solution for these people?
With low credit scores, there are very few card options out there for such people. These people have trouble getting unsecured cards and that is why secured cards would be the solution for them.

What is a secured card?
A secured credit card is basically a card given, based on the money placed as security deposit which is taken as collateral. And that is why lenders get the confidence that they will get their money back even if you have bad credit or no credit history. The credit line in your secured credit card is determined from your ability to pay, your income and your cash collateral deposit.
Secured cards are like prepaid cards but unlike prepaid cards, your payments would be reported to the major credit rating agencies like CIBIL, Equifax etc. thereby ensuring that your account history will be reported to your credit report. Thus, secured credit cards will help you establish your credit history.


How will these secured cards work?
Secured credit card works just like unsecured credit cards. You can use them for the usual everyday transactions where you use normal credit cards. As much as these secured credit cards can help you rebuild your credit history, a default in your payments and you would be back to square one, with the card issuer keeping your collateral deposit. The monthly payments are just as important for a secured card just as it is for an unsecured card. Secured cards are also reviewed at regular time intervals, if the card issuers find your credit behavior responsible (i.e by being regular on your monthly payments) they may qualify you to move to an unsecured credit card and get a refund of your collateral deposit.

That is how by making timely payments and maintaining your balances well within your credit limits on secured credit card , this responsible credit behavior might help you a lot in building or rebuilding your credit score.

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Source: Secondary