Is personal credit the same as business credit? Do you need to have a separate credit score rating for your business? Can you use your personal credit history to get a loan for your business? Credit is an integral part of our lives, whether we use it for our companies or ourselves. It’s essential to understand how credit ratings work to make sound decisions about financing and borrowing. This blog post by Trifecta Credit Solutions will clarify personal and business credit!
What is Personal Credit?
Personal credit is your credit score rating that lenders look at when considering a loan for you. Individual credit scores are based on your credit history, such as how often you have repaid your debts on time and your current total debt.
What is Business Credit?
Business credit is built when you borrow money for your business and then repay that loan on time. It’s different from personal credit because it’s not based on your credit score but rather on your business transactions.
How Are They Different?
They may seem similar, but the two types of credit scores look at separate things. Here are some of the differences:
1. Personal credit is related to your Social Security Number, while your business credit is connected to your Employer Identification Number. You don’t need a separate EIN in some instances, but it is good to apply for one if you want to keep your personal and business credit score separate.
2. Another difference between personal and business credit is that the latter is used to get a loan for your business. Financial institutions will not consider your personal credit history when you apply for a loan as a business.
3. The three major credit bureaus (Experian, Equifax, and TransUnion) only generate personal credit scores. Separate credit bureaus do credit score ratings for a business.
4. Since credit products for businesses are based on business revenue and score, this generally leads to a higher credit limit for business credit cards, for example. Personal credit cards do not enjoy the same high credit limit benefits.
5. Consumer protection laws for consumers are more stringent, so if a customer approaches a credit bureau asking to correct a mistake on their report, as per the law, the bureau has to respond. There seem to be no such requirements as far as businesses are concerned.
6. Personal credit history is yours forever. However, if you sell your business, the credit score will move with the company to the new owner.
7. Business credit can be shared with employees if it’s decent enough. You may share this information with a trusted employee. This will help the business if it needs to borrow money quickly.
8. There are more options for acquiring business credit – including from family and friends – than personal credit.
Trifecta Credit Solutions offers many credit-related services and solutions customized to your needs. If you reside in the Easton, PA area or thereabouts, contact us with your queries about credit scores, credit building, and repair.