All posts by Brodie Oldham

Paying down commercial debt — is paying one account and going delinquent on another a good idea? In this business credit answer, I want to talk with you about paying down commercial debt, and establishing your small business and gaining access to commercial credit. To do this, you need to focus on your commercial credit score. It's just like your personal credit score. You monitor it, you try to get it up, you pay your bills, and you make sure that everything is being reported to the credit bureau. Doing those activities will help your consumer credit score to go up. Same thing for your commercial credit score. It's looking at any type of commercial credit cards that you have, term loans, how you are honoring the debts that are there, and repaying them. This is what a lender uses to establish your repayment behavior and to look at how much additional funding they want to give to your small business. I had a friend that wanted to pay down some of the debt that they had for a small business, and they had two different accounts that had pretty high debt. He was asking me should I just pay down one of those debts, and let the other one go into delinquency for a while and then come back to that one and pay it down?  He figured that way he'd have that sense of paying one down quickly and get one out of the way. And then focus on the other one. Well, what I told him was that it's not just a single debt that your credit score looks at. It's over your whole portfolio of debt. And so, missing a payment or pushing a bill to the side can bring your credit score down and sometimes significantly. So, you look at your credit score and you see it go down maybe five or 10 points. With delinquency, it can bring it down up to 30 points. So it's a big drop. As you bring up your credit score, it takes a little while to regain ground you may have lost.  So you want to keep that propensity to pay, and that lender view of you in a very positive light. You can check your Experian Business Credit Score by purchasing a one-time copy of your credit report, or by signing up for business credit monitoring, including unlimited access to scores. Read our post on checking your business credit score for more information.

    Why it is so important to separate business and personal credit When we look at small business owners like you in the U.S., we know that you are less delinquent on your accounts. You revolve a little bit more of those balances as you go forward, as you're trying to grow your business. And we know that you are more likely to pay your debt because it's tied to your livelihood. And if something is tied to your livelihood, you're more likely to honor it. Well, we want you to honor all your obligations on your consumer and commercial credit. And so to do that, it's better to separate out those two forms of credit. Your two profiles, your business, and your consumer, meaning just your personal credit. So when we look at this, think about it in this way. I have a small business, and with my small business, sometimes I need to buy equipment. But it as a small business owner. I may not have established my commercial credit. I don't have anything on a commercial credit card. I don't have an installment loan through my business. And I want to do it on my consumer credit card. So I go out and I buy this piece of equipment. I put it on my consumer credit card. What that does is add debt to my consumer credit. A lot of times that utilization will be a little bit higher. The debt will be higher. It's a piece of equipment. Generally, it's pretty big. That means my score will go down a little bit.  You may come into a life event. So we've had a third kid and my wife says, hey, we need a little bit bigger house. So to do that, we go shopping for a house. But what I have is this piece of equipment on my personal credit, bringing my score down a little bit. That's going to make the cost of my house a little bit higher. And I may not be able to afford the houses that I'd really like. So pulling that piece of equipment, going through a commercial credit facility, getting it on a commercial credit card or an installment loan through my business will bring that debt off of my personal credit and put it under my business, where it should be. That establishes my small business, allows that score on my small business to go up. It also takes a debt load off of my consumer credit, allows that to go up. And so it makes me have a better opportunity to buy a house at a cheaper price, also allows me to build my small business credit. And in doing that, I can gain access to cheaper funds for my business going forward and grow. You can check your Experian business credit score by purchasing a one-time copy of your credit report or by signing up for business credit monitoring, including unlimited access to scores. Read our post on checking your business credit score for more information. Related: What is a good business credit score? How do I check my business credit score? Adding tradelines to build credit for your business