Is Your Business Credit Different From Your Personal Credit?

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No market force has as much impact on finances as credit. It’s almost impossible to imagine a functional marketplace without the ability to borrow money.

Consumer and business profiles are closely tied to credit scores, as they can infer a lot about a person’s or company’s financial health. But are business credit and personal credit separate? Can a small business truly improve its cash flow with a business-only credit account?

In this quick guide, we'll examine business credit score vs. personal credit score, how they occasionally cross paths, and why keeping them as separate as possible is essential.

What is Personal Credit?

Personal credit refers to your history as an individual consumer who uses credit. It stretches back to the first time you took out a line of credit, whether that was your first credit card, student loan, car payment, mortgage, or any other credit-managed expense.

When you begin using credit, transactions are linked to your Social Security number (SSN). These transactions are compiled by credit bureaus, who use the information to calculate your personal “credit score.” 

What is Business Credit?

Business credit refers to credit transactions done under the name of your business. In many ways, it works the same as personal credit, although there are a few significant differences.

Your business credit is linked to your Employee Identification Number (EIN). This number is assigned to your specific business after you launch and file your first tax report. All your business credit purchases link back to your EIN, the same way personal expenses link to your SSN. 

Business Credit Score vs. Personal Credit Score

On paper, your business credit score is separate from your personal one. But they can, in certain circumstances, intersect.

Factors in Credit History

Both business and personal credit scores reflect how well you manage your credit. The primary criterion is your repayment history: if you always pay your monthly bills on time, it helps your score. 

Other factors — like having diverse credit sources and spending below a given percentage of your credit limit — also influence your personal score. Failure to keep up payments, bankruptcies, and tax liens negatively impact credit scores.

A business credit score is calculated similarly, but with some added factors. These details may include how long your company has been operating, what business sector or classification it exists under, and its employee count. It also takes public court records into account, such as civil court judgments, liens, and bankruptcies.

Scoring Range

Depending on the credit bureau, your personal credit score will be a number between 300 and 850. In that range, a score of 700 or higher is generally regarded as “good.” Business credit scores are calculated on a scale of 1 to 100, worst to best.

Credit Bureaus

Both personal and business credit scores are calculated by two leading credit bureaus: Equifax and Experian. Another agency, Dun & Bradstreet, exclusively calculates business credit scores.

The Difference Between a Business Credit Card and a Personal Credit Card

Small business credit cards function essentially the same as personal credit cards, with some important distinctions between the two.

Some business credit companies report all transactions to both consumer credit bureaus (Experian and Equifax), while others only report to business or commercial credit bureaus (Dun & Bradstreet). 

If a small business owner wants to improve both their personal and business scores through small business transactions, they have to get cards from companies that report to both types of bureaus.

Business credit cards tend to have higher limits, since both business revenue and the owner’s personal income are considered when the credit card agency sets the limit. This higher limit is handy for businesses with bigger operating expenses.

More often than not, small business credit cards offer more detailed, itemized, and organized account statements and reports than personal credit cards. This makes it much easier to track spending and find potential tax deductions. 

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Does Personal Credit Affect Business Credit (and Vice Versa)?

In theory, personal and business credit scores are entirely separate entities that exist concurrently. But in reality, they occasionally bump into each other.

For example, when a small business owner attempts to get a business credit card for the first time, the financial institution will consider their personal credit history, along with data specific to the business. 

If the business owner has a poor personal credit history, their business card application may be declined or issued with stricter terms and higher interest rates.

The reverse is also true: Business credit activity can influence one’s personal credit score. Many business cards are issued with the requirement that the owner signs a personal guarantee — if the business can't pay for a certain item, then the owner becomes personally responsible for payment. This can harm the owner’s personal credit history as well.

And as we mentioned above, some credit card companies report to both consumer and business credit bureaus. While that can improve both personal and business credit scores, it can impair both, too. 

Why Is Business Credit Important?

A small business without credit faces many hurdles. Some business transactions — like taking out a loan, getting business insurance, or buying supplies and services you need — simply can’t be done at all without existing business credit.

It’s always ill-advised to use personal funds for those kinds of business transactions, as well. The IRS has firm regulations against mixing business and personal expenses, with severe consequences for those that do.

Accounting and bookkeeping are also much harder when you use personal funds for business expenses. Worst of all, if your business runs into financial trouble, collectors may try to seize your personal assets.

On the plus side, a business credit account can be an important tool in launching and running a business. It can free up cash flow, streamline expense reports, and reflect well upon a company’s professional profile.

A good business credit score can even make your company more valuable. If you decide to sell your business, its credit account will transfer to the new owner. If your company’s credit score is high, it will make it much more attractive to the new owners that will take it on. 

How to Keep Your Business and Personal Credit Separate

There are a few ways to establish a line of business credit entirely independent of your personal credit.

Open a Business Checking Account

This is an almost mandatory step for small businesses in itself, but it can also help build and improve business credit. A business checking account is the starting point for business growth. It’s an easy way to keep expenses centralized for more efficient business statements and tax records.

Get a Business Credit Card

For all of the same reasons as a business checking account, it’s good to apply for at least one company credit card. It’s the easiest way to build a positive credit record for your business if you and your employees use it responsibly.

Ask Vendors for Credit Lines

You can request credit terms from some of the outside vendors you use the most. The line of credit limit doesn’t have to be big to start. After you’ve made regular payments on time, ask to have terms or limits extended. This is a great way to improve your credit profile to other vendors, even if you just start with one or two.

Register with the Credit Bureaus

Start a credit file with Experian and Equifax and apply for one with Dun & Bradstreet.

Business Credit Score vs. Personal Credit Score: The Final Word

Navigating through credit options may seem a little complex at first, but keeping your business credit distinct and separate from your personal finances is necessary for business growth. 

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