What’s the Difference Between Personal and Business Credit?

For beginners to business credit, the distinction between the score awarded to your company and your personal score can be hard to parse. After all, if you own the company, then its credit should be as good as your own, right? It seems reasonable, but that’s not the case. There are a few reasons for that. Businesses are their own entities, so their credit scores reflect their activity alone, without being bolstered by your consumer credit history. Similarly, your consumer score reflects your personal financial management skills, and setbacks encountered by your business won’t necessarily apply to your ability to get personal credit.

Does That Mean Business Lenders Ignore Personal Credit?

No, it does not. While lenders want to see that your company makes enough money to pay its creditors on time without extra assistance from your personal wealth, they do weigh your personal credit score and assets when deciding whether to lend to your company. That’s because they want to know that you are in a position to invest in the company if it gets into trouble. Depending on how deep your personal resources are, it could even offset some of the effects of a mixed or yet to be established business credit history with the right lenders.

How Are Credit Scores Calculated For Businesses?

Like your personal score, businesses have credit scores calculated by weighing their history of late and on-time payments to their various creditors. The score looks at outstanding loans, tax debt and liens, and unsecured credit accounts. It typically does not include payments to suppliers or utilities, but if you are working on building up your credit you can request those accounts report payments. Often, your suppliers and utility companies will help you out there, and when they do choose to report, their reports are figured into the score as well.

Key Differences Between the Credit Scores

This might all sound familiar, but there are a few key differences between the way this calculation works for consumers and for businesses. For starters, the business scoring system currently in use tends to express your score as a number between 1 and 100, where consumer credit scores tend to be somewhere between 400 and 850. There’s less transparency to how creditors are weighed when a business credit score is calculated, and that includes less transparency for how different types of accounts are weighed. By contrast, it’s relatively easy to find the breakdown between types of credit in the weighting of the FICO consumer credit score most commonly used for individual credit reports.


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