Is there a Difference between Personal and Business Credit?

Personal Business Credit

We all know how important building credit is.

In most cases, it’s what determines whether we can buy a house or a new car. There are many factors which determine your credit score and you can learn more about those here [link to blog 14]. If you’re a business owner, there are additional factors that contribute to your business credit score, and these vary by your business type. It can be confusing.

Your business credit score depends on whether you’re registered as a sole proprietor or a corporation (such as an LLC). If you are already in business or considering starting a business, knowing the differences in how credit is calculated is important.

1. Personal Credit

This is usually determined by two factors: your trustworthiness and spending history which are both pulled from your social security number records. Your social security number tracks your lifetime earnings, how many credit cards you have or have applied for, how much debt you have and more. Each item is used to calculate a credit score, usually between 350-850, with a score of 700 or above generally considered ‘good.’

2. Business Credit as a Sole Proprietor

If you’re registered as a sole proprietor, your business credit is linked with your personal credit, and thus your personal credit could be affected by what happens in business. It means that when applying for business loans, for example, lenders may be a little more weary of you as a sole proprietor. Success is unpredictable and in the instance that you suddenly stop working (for example due to illness) the loan would not be paid back. On the other hand, it means that if you’ve built a good personal credit history, you may be more likely to find business expansion easier if you need credit.

3. Business Credit as a Corporation

Registering as a corporation means that you’ll have a different set of factors determining your business credit score with a new credit history to build. The credit score is tied to the employer identification number rather than you individually. Each of the credit bureaus has its own scores and set of guidelines. Typically, company size, payment history, and things such as liens, bankruptcies or creditor filings all impact your business credit score.

Do you need more information on credit?

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