How Do Personal Credit and Business Credit Affect Each Other?

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Though personal credit and business credit are two separate things, your personal credit scores can impact your ability to get a business loan, credit card, or other financing types. This is especially true if you are still establishing your business credit profile. 

Many banks and lenders use your personal credit scores as a large part of their decision on whether they’ll lend you money. To them, your credit report is a solid indicator of your money management skills. 

As you establish your business credit by paying on time or early, it can help demonstrate your company’s creditworthiness, apart from your personal credit history.

How Are Business Credit and Personal Credit Related?

Business and personal credit reporting agencies use different information to calculate your scores. For example, FICO’s scoring method for personal credit uses five key factors to make up your score: 

  • Payment history — 35%
  • Credit utilization — 30%
  • Age of credit — 15%
  • Mix of credit — 10%
  • New credit — 10%

Business credit reporting agencies (mainly FICO, Experian, Equifax, and Dun & Bradstreet) approach credit scores differently, using factors including:

  • Number of employees
  • Public filings
  • Time in business
  • Payment history, which carries the most weight for business credit scores

How Does My Personal Credit Impact My Business Credit?

If you’re a sole proprietor (or one to three owners/family business), have less than 100 employees, or have been operational for under 10 years, the creditors will likely include your personal credit in their decision to grant you money.

Financing underwriters typically rely on your personal credit to assess your ability to manage debt. If your personal credit isn’t managed well, your lender will conclude you won’t be able to handle your business credit.

Even though your personal credit is not the only component used in approving a business credit loan, line of credit, or credit card, it makes a difference. To qualify for a business financing product, you’ll have to build your business credit, and before you can do that, you’ll need to take steps to improve your personal credit. 

How Does My Business Credit Impact My Personal Credit?

Many new business owners feel obligated to offer up their personal credit to make purchases for their companies. Yet linking your personal and business credit together can lead to severe risks. As your business grows, so do your expenses and, in turn, can lead to greater personal liabilities. 

This is especially true if you’re required to give a personal guarantee when you open a business credit card account or take out a small business loan. Because it puts your personal assets in danger, a personal guarantee is something you want to avoid, if possible. 

Lowers Your Personal Credit Score 

Your personal credit score can take a hit each time a hard report is pulled by companies wanting to do business with you. Not an ideal situation if you’re looking to improve your personal score. 

To acquire a business line of credit or credit card, you may have to pledge assets and sign a personal guarantee. This means you are responsible for your charges if your company can’t pay them. 

If you’re unable to cover the bills yourself, the creditor may sue you for the debt. 

Credit Issuer Reports Business Activity to Consumer Credit Bureaus

Depending on your creditor or lender, your business credit activity (debt incurred and payments made) could make it onto your personal credit reports.

This can happen if your creditor or card company chooses to send the data to the credit reporting agencies.

If this happens, it will affect your personal credit score in the same way any other card does. Therefore, it’s vital to monitor your business credit and read the terms and conditions carefully.

Raises Your Credit Utilization Ratio

If your personal creditor includes your business card on your personal credit report, it can negatively impact the amount of available credit you’re using, or your credit utilization ratio. 

This can also happen if you use personal credit to purchase expensive office equipment or other business-related items. 

This could cause difficulties when potential partners or lenders want an indication of your firm’s creditworthiness.

As your business grows, you can take steps to separate your business credit and personal credit. 

How to Know if Your Business Credit Is Reported to Your Personal Credit File?

When applying for business credit, be sure to read the fine print in your terms and conditions. If you’re filling out an application for a credit card and furnishing your Social Security Number, your creditor will likely review your personal credit. Though if you are only asked to supply your D-U-N-S Number, or Employer Identification Number (EIN), your business credit will likely be the only one checked.

How Personal Credit Can Affect Business Funding

When you apply for a business loan from a traditional loan or financial institution, your personal credit scores will play a crucial part in whether they approve you or not. Every lender has its own requirements; however, most traditional financial institutions won’t qualify you for business funding with less than a 680-credit score. 

If this is the case, turn to an alternative lending option like the Revenued Business Card. Revenued gives you access to working capital based on your revenue, not your credit. Unlike traditional banks, if you have a subprime credit score, you’re not automatically disqualified.

How the Revenued Card Can Impact Your Business

To qualify for the Revenued Business Card, your U.S.-based company must have a minimum of $10,000 per month in sales, an average daily bank balance of at least $1,000, and no more than three negative days in a month. 

Use the Revenued Card to:

  • Hire additional staff
  • Start a new marketing campaign
  • Manage your cashflow
  • Invest in inventory
  • Upgrade your business base
  • Purchase more delivery trucks

Our streamlined funding solution cuts the approval process down to minutes. We’ve left out the hassle of back-and-forth phone calls and completing endless paperwork. Our team of trusted funding advisors will work with you to get the funds you need. Call us today at +1 (877) 662-3489 or add your name to our waitlist.

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