Business & Personal Credit Score

The separation between your personal credit and your business credit can be tricky for small businesses, especially when you are the business. Generally speaking, experts recommend having a clear distinction between your personal and business finances as far as that’s possible. Building business credit aside from your personal credit is part of that equation. To some extent, your business and personal credit may remain linked, no matter how hard you work to keep them separate. For example, if you’re applying for financing and don’t have a long enough business history to qualify, you may need to add your personal guarantee into the mix.

What’s the Difference Between Business and Personal Credit?

Your personal credit is connected to you by your Social Security number. Your business credit history is linked to you by your Employer Identification Number (EIN) or Tax ID Number, which is how the government recognizes your business for tax purposes. You can apply for an EIN online and receive it almost instantly. Technically, if you’re a sole proprietor, you don’t need an EIN for taxes, but to establish business credit, you will. Your personal credit history is curated by the three major credit bureaus, Equifax, Experian, and Transunion, and you have one profile with each. Experian and Equifax also have business credit reporting services. Your business profile is separate from your personal credit history. There are credit reporting services that only deal with businesses, withDun & Bradstreet being the largest and best known. If you have more than one business, you can have a separate report for each, as long as it has its own EIN.

Personal vs. Business Credit Scores

Your personal credit is frequently summarized into a single number that helps creditors see where you stand at a glance. FICO is the most commonly used method of scoring personal credit. There is no equivalent for businesses; each commercial credit bureau scores and reports its own way. The most important factors for scoring businesses are usually how you pay your bills, how much debt you carry, and what type of industry you’re in. Generally speaking, business credit scores have fewer variables than FICO scores, and it is easier to improve the score for a business than it is for an individual. On the downside, there are fewer legal protections for business credit. Consumer credit laws allow you to challenge anything on your report and have incorrect negative entries removed. There are no such laws when it comes to commercial credit, which means if there are issues with your business credit report, you could have a much tougher time getting those dealt with. You can challenge discrepancies with the agency that has them listed, but they don’t have to respond.

Why Do I Need Business Credit?

In many cases, you won’t be able to complete business transactions if your business doesn’t have credit. Lenders will use a business’s credit history when figuring out whether or not to loan the business money. You’ll also need credit in order to get business insurance. In many instances, you won’t be able to buy goods and services for your business without access to credit.

Why can’t you use your personal credit for all of that? In some cases you can, but you really shouldn’t. The IRS has strict rules about mixing personal and business expenses. Using personal checks or a personal credit card makes your bookkeeping much tougher. Most people also believe your business looks a lot more professional when you pay for business expenses with dedicated business funds. Perhaps most importantly, if you use personal credit to run your business, you put yourself and your family at risk if your business fails or experiences money trouble. Creditors will then come after YOU, as you will be personally liable for the expenses incurred by the business.

At Credit Today we can help you build your business credit score. Fell free to contact us at (844) 674-4496 or Fill in the form clicking here and one of our agents will be pleased to contact you.​