A good business credit score can open up more opportunities for your business than just funding and cash flow.
Your business’s credit score may impact a vendor’s decision to work with you and the terms they offer. For example, wholesale distributors may be more lenient with their Repayment terms If you have a history of paying off your credit on time. You can also get better interest rates from lenders if you have a strong business credit file to back it up.
If you don’t currently have a good business credit history, it may be tempting to use a personal credit account to obtain funds in your own name. This guide shares the potential risks of doing so, as well as the key differences between personal and business credit.
What is the difference between business credit and personal credit?
Personal credit and business credit work similarly, but the main difference is the reliable entity. You are personally responsible for any personal accounts opened in your name, while the company is responsible for debts acquired in the business name. You can protect your personal assets by obtaining business credit instead of personal credit.
Businesses are also more likely to make expensive, bulk purchases—think machinery, rent, inventory, product developmentand marketing costs—so they tend to have higher credit lines.
Personal Credit Score vs. Business Credit Score
Purpose
The biggest difference between personal credit and business credit is how the funds are typically used. Businesses may use funds to pay business expenses like stockmachinery, travel, office supplies or legal expenses.
An individual can pay the same charges using a credit card in his or her own name, but you will be personally responsible for any debt. More common uses for personal credit include paying bills or purchasing items such as furniture, cars, or clothing.
Credit history
Your personal credit history takes all of your financial circumstances into consideration. The report will include personal information (such as your full name, home address and social security number) and any loans or credit accounts such as a mortgage, car loan, bank overdraft or personal credit card.
However, a business’s credit history only covers the business’s financial background. It will include industry classification, credit risk score, and loan history under the business name. Such as equipment financing agreements, business credit cards, etc. credits Will appear on your business credit report.
Hard credit checks appear on both types of credit reports. Too many of these could be a sign that you’re exploring too many loan options and negatively impact your likelihood of getting credit.
credit scoring model
Credit bureaus range personal credit scores from 300 to 850 because there are many factors that affect an individual’s score. However, businesses are measured on a scale of 0 to 100. business credit score.
credit reporting agency
Equifax, Experian and TransUnion are the three major credit bureaus used by lenders for personal and business loans. However, Dun & Bradstreet specializes in business credit records.
Liability and personal guarantee
Consumers tend to have more protection when using their personal credit cards to make purchases. Although some lenders may extend credit card lawwhich protects people using personal credit, it generally does not apply to business credit cards.
Much like personal loans, some small business loans require a guarantor. If you (or the business) can’t repay your debt, this person will step in and pay it off.
The impact of debt
Business credit is attached to the company. If you are unable to pay the loan, you can close the business and write it off, provided there is no guarantor for the loan. Only your business’s assets, such as your retail store, inventory and assets, can be recovered.
However, individuals have less protection against being unable to repay their debts. You are personally responsible for any repayments; if you fail to do so, the debt cannot be written off. Your personal assets such as your home, car, and valuables may be at risk.
Get credit information
You can check your personal credit score for free through reporting agencies such as Equifax or Experian. Businesses, on the other hand, must pay to access their reports, which can range from $40 to $50 per report.
Private information on personal credit reports is also more protected. Your business’s credit score can be seen by anyone who pays an access fee – they don’t have to be a director or employee of the company.
The combination of personal credit and business credit
Although there are differences between personal credit and business credit, both options have similarities. First, any loan requires a credit check. Lenders will want to make sure you can repay the money you lend them, so they may run a credit check on you or the business before they agree to lend you money.
most credit card The company also offers incentives business expenses. Whether it’s a percentage back on purchases in the form of points or discounts from partner brands, these offers can compound in the long run—even if you charge them to your personal credit card.
You may be held responsible for any debt that accrues. Check whether the funds require a guarantor before agreeing to take on the debt – even if loan itself in the name of your company.
How to build business credit as a startup
Building business credit is a long-term task, but there are some quick ways to help startups improve their business credit scores:
- Pay your bills on time: Just one late payment can show up on your business credit file for up to six years. Pay your bills on time, every time—or in advance if you can.
- Keep credit utilization low: This shows the lender that you are not overspending and using all the available credit you have.
- Avoid closing old accounts in good standing: Unused business accounts help maintain a low credit utilization ratio.
- Maximize your business credit limit as much as possible: But don’t use the perks. When your credit card limit is $2,500, spending $500 on a credit card will result in a lower credit utilization ratio than a credit card with a $1,000 limit.
- Keep a mix of business credit types: Reporting agencies consider your credit mix when calculating your credit score. Try hybrid options such as revolving credit linemonthly installments and credit card repayments.
- Monitor your business credit report regularly: If there is something on your business’s credit file that you don’t recognize or that is incorrect, contact a credit bureau to investigate.
Build your business credit and secure your funds
When you’re looking to obtain credit for your business, a personal credit file isn’t the best lever to rely on. By establishing a good credit history and score in the name of your business, you will open up more opportunities for your company without taking on any debt personally (provided a business loan does not require a guarantor).
If you are looking for financial support for your small business, Shopify Capital can help. You’ll be paid back a percentage of your daily sales, so you never have to worry about missing a repayment.
Personal and Business Credit FAQs
Is there a difference between personal credit and business credit?
Businesses often have higher credit limits than individuals, and there are fees for accessing your credit report. However, you are personally responsible for any debt incurred through personal credit. Get free access to your personal credit report.
Will my personal credit affect my LLC?
Not all lenders will consider your personal score when evaluating whether they will lend to your LLC, but it is an option, especially if the business is new or has a low credit score.
Is my business credit score different from my personal credit score?
Businesses have their own credit scores that are not attached to your personal credit score. There are also differences in how either score is scored: a business score ranges from 0 to 100, while a personal score ranges from 300 to 850.
Can a personal credit card be used for business?
Some small business owners use personal credit cards to purchase items for their business, but remember that you will be personally responsible for any debt – even if the items you purchase are for business use.
*Shopify partners with Stripe Payments Company and Celtic Bank to offer Shopify Credit. Card products are issued by Celtic Bank under license from Visa USA Inc. Card issuing bank terms and Shopify Credit Program Terms. “Cash Back” means a reward in the form of a percentage discount on a qualifying purchase. Earn 3% cash back as statement points on up to $100,000 in qualifying purchases per year in your highest monthly spending category (marketing, fulfillment, or wholesale), plus 1% after that Cashback. Earn 1% cash back on the other two spending categories. There are limitations. look Rewards Program Terms Learn more.
*Shopify Capital loans must be paid in full within 18 months, and two minimum payments apply during the first two 6-month periods.
Available in select countries. Applying for an offer does not guarantee financing. All funds through Shopify Capital are issued by WebBank in the United States.
