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 scores (the most common type referred to as a FICO^® score) range 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 primarily 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.

Does Personal Credit Affect Business Credit?

Yes, personal credit can significantly affect business credit, particularly for small businesses and startups. Some business credit scores, including the FICO^® Small Business Scoring Service, take your personal credit into consideration.

In addition, when a new business lacks substantial credit history, lenders often rely on the owner’s personal credit score to assess the business’s creditworthiness. Here’s how personal credit may impact a business owner:

Loan approvals. Lenders typically review the personal credit history of business owners when evaluating business loan applications. A strong personal credit score can increase the chances of loan approval, potentially providing access to larger loan amounts and more favorable terms. Conversely, a poor personal credit score can lead to higher interest rates, stricter repayment terms, or even loan denial.

Credit card applications. Business credit card issuers frequently check the personal credit of the business owner. A solid personal credit history can lead to better terms, including higher credit limits, lower interest rates and access to premium rewards programs. On the other hand, a lower personal credit score (“bad credit”) may result in limited credit options and higher costs.

Vendor relationships. Suppliers and vendors often assess personal credit scores when extending credit terms to new businesses. A positive personal credit history can help establish trust and lead to favorable payment terms, such as longer payment cycles and larger credit lines. This can be crucial for managing cash flow and maintaining supplier partnerships.

Building business credit. In the early stages, personal credit can act as a foundation for building business credit. Responsible use of personal credit, such as a timely payment history and low credit utilization, can pave the way for the business to establish its own credit profile over time. As the business builds its credit history, it becomes less reliant on the owner’s personal credit.

Personal guarantees. Lenders often require a personal guarantee from the business owner, especially when the business lacks an established credit history. A personal guarantee means the owner is personally liable for the business debt, directly linking personal credit to business obligations. This underscores the importance of maintaining good personal credit, as any negative impact on personal credit can affect the ability to secure business financing.

Interest rates and terms. Both personal and business credit scores can influence the interest rates and terms offered by lenders. A strong personal credit score, combined with good business credit, can lead to lower interest rates and more favorable terms, reducing the overall cost of borrowing and improving the business’s financial health.

Access to capital. A strong personal credit score can facilitate access to a small business loan or line of credit, enabling the business to grow and establish business credit history. Small businesses often rely heavily on the owner’s personal credit report to access initial capital. The owner’s personal credit report is made up of the credit accounts reported credit bureaus. This can include personal loans, home equity lines of credit, or personal credit cards.

Risk assessment. Creditors and lenders use personal credit scores as a risk assessment tool. A high personal credit score indicates financial responsibility and a lower risk of default, making lenders more likely to extend credit to the business. Conversely, a low personal credit score may signal higher credit risk, leading to stricter lending criteria and limited available credit.
Maintaining a strong personal credit score is crucial for small business owners seeking to secure financing and favorable credit terms for their businesses. Over time, as the business establishes its own credit history, it will become more independent from the owner’s personal finances, but initially, personal credit plays a critical role in the business’s financial success.

What Are the Different Scoring Models for Business Credit?

There are four primary business credit bureaus: Experian, Equifax, FICO^®, and Dun & Bradstreet. Each bureau has its own scoring system, so scores can vary. A strong business credit score is typically in the top 20% of the scoring range.

Experian Intelliscore. Experian offers Intelliscore Plus and Intelliscore Plus v2, both using a scale from 1 to 100. Scores of 80 and above are most favorable. Personal credit may impact Intelliscore Plus, especially for newer businesses.

Equifax. Equifax provides the Business Credit Risk Score (101 to 992) and the Business Failure Score (1,000 to 1,610). Both consider business credit factors like bankruptcies, liens, judgments, payment histories and credit inquiries. Equifax business credit scores do not directly take personal credit history into account.

FICO^® Small Business Scoring Service (SBSS). The FICO^® Small Business Score℠ ranges from 0 to 300 and includes both personal and business credit information. This score is used by lenders for SBA loans, requiring a minimum score of 155.

Dun & Bradstreet’s PAYDEX^® Score. This score, ranging from 0 to 100, is based on payment timeliness to creditors. Payments overdue by 31 to 90 days will affect your score more than those overdue by 15 to 30 days. Personal credit is not a factor in this scoring model.

Why Is Business Credit Important?

Business credit demonstrates the financial health and responsibility of your business, which is important for a number of reasons.

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.

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. However, it can be a little more difficult since some business credit scores take personal credit into consideration.

Furthermore, if a business hasn’t established a business credit profile and built sufficient business credit, lenders may look at the business owner’s personal credit.

Maintaining healthy business credit habits, such as separating personal and business finances, timely payments, and responsible credit use can help you build your business credit score over time. Even if your personal credit is less-than-perfect, you can lay a solid foundation for a strong business credit profile, enabling better financing opportunities and terms in the future.

How Do You Establish Business Credit?

In order to start establishing business credit, there are a few steps you could 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. Consider opening credit accounts or tradelines in your business’s name, and use the accounts for business expenses. 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 or late 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. Ninety percent 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.