Many business owners rely on some sort of financing to start or operate their company. This might take the form of a loan, a line of credit or other borrowing options. Just like borrowing or carrying personal debt, business financing holds sway over your company’s credit. Show
Does business credit affect your personal credit? The answer is complex. Business credit can influence your personal credit depending on several factors, including the amount of time you’ve been in business and any personal guarantees you have to provide for financing. These are just a couple of factors behind whether your business credit can affect your personal credit, however. What is business credit?Business credit allows you to borrow money to help pay for short- and long-term expenses. Your business credit score and report measure your company’s history with borrowing, credit utilization and repayment history, all of which lenders use to determine a company’s creditworthiness. This is similar to your personal credit score, although business credit score ranges can vary depending on the credit reporting agency, whereas personal credit scores usually range from 300 to 850 no matter which of the three main credit agencies you use. Understanding business credit vs. personal creditBusiness and personal credit differ from one another along several dimensions, including reporting agencies and what each credit score is associated with in terms of identification. How business credit affects personal creditBusiness credit is often linked closely with your personal credit. Your track record with business borrowing and repayment can therefore affect your personal credit history significantly, especially if you run into issues paying off business debt. The degree to which your business credit affects your personal credit depends on several factors. One of the biggest factors is the structure of your business. A sole proprietorship, for example, is tied much more closely to your personal credit since it’s not its own legal entity. Other business structures, such as partnerships or limited liability companies, have more distance from your personal credit. If you provide a personal guarantee for a small business loan, your personal credit is very likely to be affected by any repayment or default issues. Personal guarantees — whereby you offer repayment from your own finances — supply assurance to a lender and thereby can help you get business financing. These guarantees are often required for new businesses and startups that need to borrow but may not have an extensive credit history. How does a business credit card affect personal credit?A small business credit card is a common method for paying business expenses, and can affect your personal credit in several ways.
How does a business loan affect personal credit?Business loans obtained with a personal guarantee require repayment either by the business or from your own personal finances. Failure to pay, or making late payments, can negatively affect your credit score. In many cases, getting a business loan can require a personal guarantee. This makes it essential that you pay back your loan on time to keep your personal credit in good standing. How do other types of business credit affect personal credit?That depends on what financing you’re talking about. Other forms of small business lending, such as a business line of credit, can affect your personal credit. Running into financial problems with a line of credit or other loans, such as a Small Business Administration loan or a short-term loan, can affect your credit. Does personal credit affect business credit?Personal credit generally does not affect business credit as often as business affects personal, but consider these exceptions. Bad personal credit can make getting the business financing you need more difficult to do, but it’s uncommon for your personal credit details to otherwise affect your ongoing business credit utilization. Generally speaking, strong personal credit does tend to make obtaining business financing easier to do, however. Tips for separating personal and business financesYou can separate personal and business finances in several ways. The less you use your personal credit to finance business expenses, the more distance it places between your business and personal credit. Here are steps that can make it easier for you to create distance between your company's credit and your own.
The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the tax and legal consequences of any strategies mentioned in this document. This information is governed by our Terms and Conditions of Use. Is business credit associated with personal credit?Your business credit and personal credit aren't linked — but they may be related. Business and personal credit contains different information, so the scores aren't necessarily correlated.
How to use business credit and not personal credit?Follow these 10 steps to help your business qualify for financing without using your personal credit.. Pick a Business Name and Contact Information. ... . Form a Business Entity. ... . Obtain a Federal Employer Identification Number (EIN) ... . Use Your Business to Open a Business Bank Account. ... . Get a Free DUNS Number.. |