Although business credit and personal credit are two different things, they sometimes coincide. Here’s what you should know about each and how to ensure you have both healthy business and personal credit scores.
Business vs. Personal Credit
When you apply for financing for your business, you begin the process of establishing its credit history and credit score. This score is adjusted based on the length of credit history, how you use your credit, payments, and other criteria assessed by various agencies. This is similar to how your personal credit score is calculated.
Unlike personal credit ratings, however, corporate credit scores are public and range from 0-100. Personal credit typically falls between a score of 300 for very poor credit and 850 for excellent credit and these scores can only be seen by creditors, landlords, employers, etc.
When Does Business & Personal Credit Overlap?
Business credit card activity has the potential to affect both your personal and company credit ratings, while others will just affect your business’ credit score. This largely depends on the credit card company’s credit bureau reporting policy.
If your business card issuer reports all business credit activity to credit bureaus for both businesses and consumers, the transactions you make with your corporate credit card might be factored into your overall credit utilization ratio. If you’re carrying a large balance on your business card, this could in turn hurt your personal score.
If the issuer of your business card reports to personal bureaus, this activity has the capacity to improve your personal score. However, you must be sure to use it properly and avoid late or missed payments.
Monitoring Your Credit
You likely already understand how important it is to monitor your personal credit score on a regular basis. If you also own a business credit card, you need to monitor your company credit score as well. The more you know about your credit standing with corporate and consumer credit agencies, the more equipped you’ll be to manage or repair your credit.
How to Improve Your Credit
Use your personal and business credit cards with caution.
Whether you’re using a corporate or personal credit card, the right approach to building your credit is to utilize it wisely. Delinquencies on your credit card payments can influence both credit ratings.
Even something as basic as carrying a large balance on your company credit card can impact your personal credit, so make it a goal to pay off both cards on time. Think twice before you make significant purchases using either credit card and only use them when you absolutely have to.
Keep personal and business credit separate if you have bad personal credit.
Allowing your personal credit score to harm your business is not a good idea. You could have a hard time acquiring financing for your business with a low personal credit score. Secured business credit cards may be a possibility. However, it’s better to work on improving your credit score so you can apply and be approved for the financing your company needs.
With time and effort, you can improve your credit scores and obtain financing for personal or business expenses when you need them most. Whether you’re starting out with no credit, bad credit, or fair credit, being diligent about your cards and balances will help you build good credit.