How Your Credit Score Affects Your Home Based Business

A credit score impacts a home based business since it is the credit score that is closely linked to the business. A home based business is usually always an unincorporated sole proprietorship or individual owner. As such, it is the individual’s credit rating that is the same as the credit rating of the business.

The Need for Credit

Home based businesses, like any other form of business, needs to have a credit relationship with a lender such as a bank or other financial institution in order to have access to capital. This access capital helps the business purchase equipment, invest in the businesses growth, pay for marketing and advertising expenses and hire employees when the need arises.  

Difficulties with Bad Credit

A home based business with a bad credit score will find it difficult to obtain the necessary funding to accomplish much of its business goals and as such, steps should be taken by the business to improve its credit rating. Taking out a loan is a critical function of a business and the absence of this ability will require the business to find alternative sources of funding. These alternatives may come at a higher cost to the business and may not necessarily be available to the business owner.

About Credit Scores

A credit score is reported to each of the 3 major credit bureaus including Equifax, Experian and TransUnion. The reports are available to all individuals free each year and should be requested as part of an individual’s regular financial review and process. Reviewing a personal credit score is an important task for individuals but is especially important to a person operating a home based business. Not knowing what is in the credit report of a person operating their home based business may end up costing individuals borrowing opportunities or missed business as a result of their inability to access capital.

Impact of Poor Credit

If a home business owner does not this that is important to monitor their credit, they should consider the difference between taking out a loan of $100,000 at 4 percent simple interest for a person with good credit versus a $100,000 loan at 8 to 12 percent for a person with bad credit.  The 4 to 8 point difference translates in a cost of $4,000 to $8,000 in additional interest costs due to the business owner’s poor credit score.

Safeguarding personal credit is essential for an owner of a home based business.  Taking the steps necessary to pay bills on time and incurring only the debt level that is sustainable and affordable are only 2 ways in which a person can protect their credit and make


available borrowing opportunities.