Personal Credit Score vs. Business Credit Score

Here are five reasons to keep your personal credit score and your business credit score separate.

“What’s your credit score?”

For most, the answer to this question is simple. However, as an entrepreneur, you have an opportunity to build credit both as an individual and as a business owner, especially when trying to get a business loan with no credit. Here’s some easy to understand information about both of these scores – and why you need to keep them separate.

Personal Credit

Once you accept your first job or apply for a credit card, a personal credit profile is started with the credit reporting agencies - Equifax, Experian and TransUnion. Eventually, this report becomes an indicator of your ability to pay back a debt.

Information on your personal credit report includes:

• Total number of credit accounts you have open, including mortgages, credit cards, automobile loans and other accounts
• Amount you owe on each account, and the monthly payments you must make on each
• Accounts that are properly paid
• "Delinquent" accounts (payments are past due)
• "Derogatory" accounts (those which negatively impact your credit score)
• Accounts that have been closed

Personal credit scores range from 300 to 850 with a score of 680 or high considered excellent, though each reporting agency uses its own proprietary algorithm to calculate a personal credit score so your score may vary somewhat with each of these agencies.

Business Credit

Small business owners also have a business credit score. When a business issues another business credit, it's referred to as “trade credit”. Trade, or business credit is the single largest source of lending in the world.

Information about trade credit transactions is gathered by business credit bureaus that compile and provide copies of the reports. Those bureaus are Dun & Bradstreet, Experian Business, Equifax Business and Business Credit USA.

Your business credit report is generated using your business name, address and federal tax identification number (FIN), also known as an employer identification number (EIN), which you get from the IRS.

Business credit scores range on a scale from 0 to 100 with 75 or more considered an excellent rating.

Why keep them separate?

By creating a credit profile for your business, separate from your personal profile, you may be able to access more credit than you could as a consumer. On average, a business owner uses at least 10 times as much credit as a consumer – important as you establish and expand your business.

Besides the additional funds you can borrow, there are other reasons for separating your credit profiles:

1) With a business lender, you’re contractually required to pay the loan back. The clear rules and deadlines force you to use the money wisely.

2) If you don't separate the two and your business goes under, you might lose your personal savings.

3) If your business is sued, personal assets could be at risk.

4) Separate business credit makes it easier to identify business expense deductions for tax purposes.

5) Separate business credit protects your personal credit scores.

Ways to keep them separate:

• Establish your business as a separate legal entity. This could be as a sole proprietor, LLC or S-Corp.
• Set up a business checking account. This is an easy way to stay organized and monitor cash flow.
• Build a business credit history. Start by opening a business credit card and always paying on time. Make sure that the card provider reports to business credit bureaus and not to personal ones. Additionally, open credit lines with your vendors and suppliers to build trade credit.