Is Business Credit Linked To Personal Credit?

Is Business Credit Linked To Personal Credit Smile

How To View Business Credit

Did you know that over 15 million Americans are full-time self-employed business owners? As a business owner, minding the financial part is of high priority. When diving into this part of your business, creating and monitoring your business credit is key. Those who are new to this idea can begin by thinking of business credit much like your personal credit. Instead of wondering is business credit linked to personal credit, KAB credit services offers insight on this important topic.

Personal Credit vs. Business Credit

Though personal and business credit are similar, they are also usually very separate. Your personal credit is based on your personal spending history and is tied to your social security number (SSN). This includes credit or funds extended to you for reasons like credit cards or student loans. Based off your personal credit history, you are awarded your credit score by the three major credit bureaus. Equifax, Experian, and Transunion each have a score for you which averages together for your personal credit score. If you’re still unsure about personal credit, Equifax does a great job explaining it here.

Is Business Credit Linked To Personal Credit Piggy

As you may guess, business credit is based on your business’s financial history. This is any credit that’s extended to your business such as a business credit card or loan. Though similarly tied to spending history like personal credit, it is not usually tied to your SSN. Instead, it is tied to what’s known as an employer identification number (EIN). This is a specific business tax ID Number that many businesses (but not all) apply for. Although not always required for every business type, the EIN enables the government to recognize your business for tax purposes. If you’re a sole proprietorship with no employees or a single-member LLC with no employees, you don’t truly need an EIN. However, this case requires that your business’s credit be tied to your SSN. This is when there isn’t a true separation from your business to your personal credit.

When Is Business Credit Linked To Personal Credit

If you’re a sole proprietorship with no employees or a single-member LLC with no employees, you don’t truly need an EIN. This is truly the case that requires your business’s credit be tied to your personal credit. Because there isn’t a true separation from your business to your personal credit, it will go through your SSN. Separate business credit from personal credit where you can. The first major reasoning lies with your business’ credit history report. Experian, Equifax, and other reporting services deal specifically with business credit reportage. Among the business-only credit reporters is the company Dun & Bradstreet. Also because your business credit’s tied to your EIN, that credit history follows you through all projects under that number.

The other notable difference between business and personal credit is the legal defense. You are subject to greater legal protections when it comes to personal credit reporting and scores. There are actually personal credit protections that empower you to challenge anything on your personal credit report. For instance, you can request that incorrect entries be removed from your personal report. Specific laws exist for this very reason that deal with fair credit reporting. These types of laws unfortunately do not exist for business credit purposes. You can challenge entries on your business credit report. However, the provider does not legally have to respond. May this serve as a reminder of the many reasons you should be vigilant monitoring and managing your business finances.

Business vs. Personal Credit Scores

As discussed, both business and personal credit comes with a scoring system. Both stand to support your ability to balance crediting, however the numbers are notably different as well. A personal credit score is a value that can range from 300-850, with higher scores meaning better lending and reliability.

In similar fashion, your business credit score, demonstrates how creditworthy you and your business are as your EIN shows. Different from your personal credit, business credit score value only ranges from 1-100. A higher number is preferrable just like for your personal credit. This offers greater abilities and likelihood that lenders, credit card companies, and other entities will extend you credit.

When Personal Credit Affects Business Credit

In the beginning, personal credit can affect your ability to obtain business credit products. This can be a good or harmful thing when growing and establishing business credit. When applying for a business credit card, part of the application process includes reviewing personal credit history. When your personal credit is good, the issuer is likely to approve your application and offer a high limit. Alternatively, if you have poor personal credit, you may not qualify and get denied. The other great thing to note besides the qualifying factor is that your personal credit history can affect your credit terms. As personal credit score and history increase, as do the chances for reasonable terms and low-interest rates on business loans.

The Case When Business Credit Affects Personal Credit

On the other side of the coin, business credit can impact your personal credit as well. When using a business credit card to build your business credit history, you often sign a personal guarantee. This holds you personally responsible to pay back funds that your business can’t. As you may imagines, this has potential to negatively affect your personal finances and credit score. Another thing to be aware of is the reporting habits of your card issuer. Some companies report your business credit card activity for both your business credit reports and your personal credit reports. This instance makes it even more important to watch your business credit and the conditions that apply to some products.

Keep Business Credit Separate from Personal Credit Often

When is business credit linked to personal credit? Times exist when business credit and personal credit are connected. However, it’s still important that you separate your business and personal finances. Separating these two finances saves you from complicated bookkeeping and protects your personal funds and liability. Start by opening a business checking account to separately track your business assets and expenses. Once you feel your business is ready, you can then apply for a business credit card to build business credit history. This can further assist in tracking expenses prove increasingly useful as your business grows.

Who We Are – KAB Credit Services

At KAB Credit Services, our mission is helping entrepreneurs obtain the capital and credit they need to fuel their dreams.  Whether you are just starting your business or looking for millions in capital to expand, we have solutions to help fund your business goals. KAB Credit Services dedicates to helping you get business credit and financing for your company. Call us to schedule a FREE consultation. Still have questions or comments? Send us a message today!