Personal Credit vs. Business Credit

Back to blogPosted by First National BankPosted on Banking 101, Money & Metrics

Credit is something we are all familiar with. We use it to pay bills, put gas in our cars and so much more. Every person has their own credit history that follows them throughout their lives. The same could be said for businesses. Even though they aren’t people, businesses generate their own credit history and scores.

Personal Credit

According to Black’s Law Dictionary, “Personal credit is that credit which a person possesses as an individual, and which is founded on the opinion entertained of his character and business standing.” Your personal credit report contains your personal information and is tied to your individual social security number. Credit scores typically range from 300-850. Ideally, your personal credit score should be on the higher end of this scale. This deems you a more creditworthy individual. This information includes your credit account history, credit inquiries, and public records. This type of information is reported to the credit bureaus by lenders and creditors. These scores that are generated by the credit bureaus are used to inform future lenders about your personal creditworthiness. You are also afforded a greater amount of legal protection on your personal credit history. For example, you are able to challenge any item that appears on your personal credit report. You can also request that inaccurate information be removed from your report.

Business Credit

Business credit is defined as, “Any loan or line of credit to a company or an individual for business purposes as opposed to personal use.” Business credit reports typically list general company information, business history, business registration information, a government activity summary, company operational data, industry data, public filings, and past payment history. Similar to personal credit, business credit ratings are generated by the three main credit reporting bureaus.  A business credit score typically ranges from 1-100, the higher the number, the more likely lenders, credit card companies, and other sources of financing are to extend you credit. The method of determining these scores varies depending on the credit bureau. Some factors that typically affect your business credit score include credit utilization ratio, payment history, length of credit history, business size and industry risk.  Business credit is tied to your businesses’ EIN (Employer Identification Number). If your business does not have an EIN you can easily apply for one. Here is a helpful how-to showing how you can apply. A business owner’s personal information may be tied to a businesses’ credit history, however, these two types of credit reports are judged separately.

When it comes down to it, credit is typically needed at some point in time when running a business. There are benefits and downsides to using your personal credit for your business or using a separate business entity for a separate credit profile. Still undecided on what path is best for you? Here is a great article explaining why you should keep your business and personal credit separate.