Business Credit vs. Personal Credit — What’s the Difference?

As a small business owner, understanding the difference between your personal credit score and your business credit score is important. Both these numbers can impact you and your business’s finances.

Learning how each score works, where to use them and why they’re important can help you grow your business to new heights and keep your personal finances on track.

What’s the Difference Between Business Credit and Personal Credit?

Business credit scores and personal credit scores are two different types of credit scores that lenders use to determine the creditworthiness of individuals and businesses.

Your personal credit history can help you as an individual get credit such as personal loans or personal credit cards. Your personal score may be a factor when you’re applying for business lending as well, but having a good business credit history can help you keep them separated. A good business credit score can also help you get more favorable terms for small business loans, business credit cards or business lines of credit.

Scores. A key difference between personal and business credit is the way the scores work. Personal credit score (sometimes referred to as a FICO score) ranges from 300 to 850. It’s calculated based on factors such as payment history, credit utilization, length of credit history, new credit accounts and credit mix. You can check your personal credit score on sites like Credit Karma. You can also get a free copy of your credit report every 12 months.

On the other hand, business credit score ranges can vary widely. Each bureau has its own scoring system so your score can look different at each one. They consider factors like payment history and credit utilization as well, but they also look at things like your business size and industry risk. You can check your business credit score through each of the major business credit bureaus.

Bureaus. Personal credit reports are managed by three major credit bureaus. These are Equifax, Experian and TransUnion.

Equifax and Experian also oversee business credit reports, but there are other credit reporting agencies like Dun & Bradstreet and FICO Small Business Scoring Service.

Why Is Business Credit Important?

Protect your personal credit. Maintaining a distinction between your personal finances and your business finances can help you protect your personal credit. Running a business has its ups and downs. If your business is facing hard times, you can keep your personal credit score protected.

Get access to business funding. Your business credit score is a measure of your business’s creditworthiness. Some lenders and credit card issuers may consider both your personal credit and your business credit, but having a strong business credit score can help you get lower interest rates, higher credit limits and better terms.

Improve your relationships with your vendors. With a good business credit score, vendors and other suppliers may be more willing to extend credit or payment plans. This can help you better manage your cash flow and inventory.

Find better business opportunities. Partners and investors may be more inclined to work with businesses that have a good business credit score. A good score can instill confidence in the stability of your business. Plus, business credit scores are a transferable asset. If you ever sell your business, a good score can help raise the value.

How Do You Get Business Credit?

In order to start establishing business credit, there are a few steps you need to take.

Get an Employer Identification Number (EIN). An EIN is a number the government assigns to your business for tax purposes. You can apply for an EIN online. Just like your personal credit score is linked to you by your social security number, your business credit score is linked to your business by its EIN.

Open a business credit profile. In order to have a business credit profile your business needs to have things like an EIN and a business bank account. For some of the bureaus, such as Dun & Bradstreet, you may also need to register your business. You can apply for a free DUNS number to ensure you’re registered.

Build business credit history. In order to build credit, you need to open credit accounts or tradelines in your business’s name. Be sure that the vendor or lender reports to the major business credit bureaus.

How Do You Build Business Credit?

Building a good small business credit history can look a little different than building personal credit. While many of the factors are the same, there are some things you should look out for.

• Make on-time payments. Just like your personal score, your payment history has a big impact on your business credit score. Making repayments on time and in full can give your score a boost, while missed payments and defaults can drag your score down. Your business’s public records will also be on your report. This can include things like bankruptcies and tax liens.
• Watch your credit utilization ratio. How much credit you use matters as well. Credit utilization is the percentage of your total credit limit you’ve used. Keeping this low can help your score.
• Have older accounts and a good credit mix. Older accounts (that are current) and a variety of credit types can show that you’re capable of managing your business’s credit and finances.
• Your business’s age and size matter. 90% of startups fail. If you have an older and established business, it’s less likely that you’re going to go under. This can be reflected in your business credit score.
• Factor in your industry risk. Similar to how older businesses are less likely to fail, businesses in more stable industries may get a credit boost.

Does Personal Credit Affect Business Credit?

There can be some overlap between your personal credit and your business credit. If you’re a newer business or don’t have an established business credit history, a lender may rely on your personal credit score or they may require a personal guarantee. As you build your business’s credit, you can start relying more on your business’s credit score instead of your own.

Can I Build Business Credit if I Don’t Have Good Personal Credit?

Yes, you can build business credit even if you have bad personal credit. It can be a little more difficult since lenders often rely on your personal credit if you don’t have business credit, but it’s not impossible. Maintaining healthy business credit habits can help you build your business score, even if your personal score is less-than-perfect.