Why is inflation bad? The simple answer is high interest rates. They affect everything. Money doesn’t go as far, borrowing is more expensive, and everything is harder. Personal credit can be finicky, and inflation doesn’t help. It is subject to a lot of different factors. There is much more to it than just paying your bills on time. Inflation can wreak havoc on personal credit, and that can, in turn, cause serious issues with your ability to get business funding.
Why Is Inflation Bad? The Effect on Personal Credit
These are some of the factors that can affect personal credit.
- Age of accounts
- Account Mix
- Debt-to-Credit Ratio
- Payment history
- And more!
As you might have guessed, this means that even if you pay on time every time, you can still have a less than great personal credit score. Still, how does inflation affect these factors? More so, how can issues with personal credit affect business funding? Then, what can you possibly do about it?
Personal Credit Issues that Can Kill Business Fundability
First, you need to understand which personal credit factors can also affect Fundability. Here are 5 Factors that can affect your personal credit and your ability to get business funding.
Lack of Open Credit
This is the big one. It deals with the debt-to-credit ratio. That is, how much credit you are using versus how much you have available to use, in total.
For example, imagine you have 5 credit cards with a $1,000 limit each. That means you have $5,000 in total credit available to use. Now, if you put $900 on each one, your ratio would be $4,500/$5,000, or .9.
As a result, you are using 90% of your available credit. For an optimal credit score, it needs to be less than 30%. This will especially be an issue if you are using personal cards for business funding. Typically, personal cards have lower limits than business cards. Furthermore, business expenses are usually more than personal expenses. So, even if you make payments, your balance could hover near credit limits.
Why is inflation bad? Higher interest rates mean higher minimum payments with less going toward the principle. Consequently, it is harder to get balances down and keep them down to a more positive debt-to-credit ratio.
Open Charge Offs
If a bank sees open charge offs on your personal credit report, they are going to question your ability to make payments. This can cause them to deny or limit the amount of funding they approve.
Why is inflation bad? With the reduced ability to pay accounts off, more charge offs are likely.
Judgements and Tax Liens
The same is true for bankruptcy, judgements, and tax liens. These kinds of issues on personal credit can make credit providers call other things into question, such as your ability to run and manage a business.
Why is inflation bad? Higher interest rates make it hard to pay obligations, which can increase the likelihood of financial problems, including bankruptcy.
The Relationship Between Business Credit and Personal Credit
How exactly does personal credit have any bearing on business credit? The truth is, at least two of the business credit reporting agencies use your personal credit score when calculating your business credit score. As a matter of fact, both Experian and FICO SBSS do this.
However, when set up properly, the reverse should not be true. Credit in the name of your business should not affect your personal credit score.
What’s the Solution?
First, fix your personal credit issues. Pay down debt, and clear liens and judgments if you can. Bankruptcies only come off with time, but more positive marks will help. Start now, before inflation grows.
Build Business Credit
Having business credit will help you get funding to grow and run your business day to day without depending on personal credit.
Work with a Credit Partner or Guarantor
This is someone who has good personal credit that can help you get credit for your business using their good credit score. One way they can do this is by helping you get financing through the Credit Suite Credit Line Hybrid. The Credit Line Hybrid is unsecured business financing that you need good credit, or a guarantor with good credit, to get. Better yet, you can get up to $150,000.
Don’t Wait, Start Now Before Inflation Gets Any Worse
Building business credit at the same time you are working on personal credit can keep you going. Eventually, you will have both good personal and business credit. Truly, the sooner the better. Not only will you be better able to weather the inflation storm on the horizon, but you can also double your funding options.
Then you will be able to get even more money by using both your personal credit and your business credit.