In this article we will analyze the personal credit vs business credit. In relation to this topic there are many doubts, that is why we want to make very clear the similarities and differences between these two types of credits and everything you must do to build or improve them.
Both business and personal credit provide insight into your ability to manage debt effectively. However, business credit is related to your company’s financial history, while consumer credit is based on your personal spending history.
What’s more, business credit is tied to your company’s employer identification number (EIN). Meanwhile, personal credit is linked to your social security number (SSN).
- 1 Personal credit vs business credit
- 2 Personal Credit vs. Business Credit: How Business Credit Works
- 3 Personal Credit vs. Business Credit: How Personal Credit Works
- 4 How Business Credit Affects Personal Credit
- 5 How business and personal credit are calculated
- 6 Personal Credit vs. Business Credit: How to Build Them
- 7 Personal Credit vs. Business Credit: Frequently Asked Questions (FAQs)
Personal credit vs business credit
Both business and personal credit have their own credit score ranges. Business credit scores typically range from 1 to 100, with 100 being the best possible score. Personal credit scores typically range between 350 and 850, 850 being the best available score. The higher your score, the more likely you are to qualify for favorable terms like lower interest rates and larger loans.
Personal Credit vs. Business Credit: How Business Credit Works
Your business credit is measured by four credit bureaus and scoring models: Dun & Bradstreet (D&B), Experian, Equifax, and FICO SBSS. These credit bureaus collect public and private financial information to calculate your business credit score., including vendor accounts, payment history, company size, and debt obligations such as business credit cards. Although business credit is tied to a unique EIN, anyone with your business information can view your business credit report through the following credit bureaus:
- Dun & Bradstreet (D&B): This is the most widely used business credit bureau. To establish credit with D&B, you will need to apply for a Data Universal Numbering System (DUNS) number. This bureau offers five main credit scores that measure a company’s status: PAYDEX® Score, D&B Score, Delinquency Forecaster Score, Failure Score, and a Viability Score.
- Experienced: Experian uses current and historical financial data, as well as public information, to collect and create your credit score. Experian’s business credit score, Intelliscore Plus, ranges from 1 to 100, with 100 being the highest possible score.
- Equifax: This agency evaluates public business and industry information, payment history, and financial performance information to produce two credit scores: the Equifax Score™ Business Credit Risk and the Equifax Score™ Business Failure.
- FICO SBSS: Although not a credit bureau, the FICO SBSS scoring model uses a combination of personal and business credit to provide a business credit score between 1 and 300. The Small Business Administration (SBA) requires a minimum score of 140, but In most cases, you will need a FICO SBSS score of 160 or higher for SBA loan approval.
Business credit scores typically range from 1 to 100 (up to 300 with the FICO SBSS), with 100 being the best possible score. Although D&B is the most widely used credit bureau and score, it’s a good idea to get all your business credit reports on a regular basis.
Personal Credit vs. Business Credit: How Personal Credit Works
Your personal credit profile is linked to your social security number and is measured by four credit bureaus: Experian, Equifax, Transunion and FICO. There are also two main credit scoring models: AdvantageScore and FICO. Scores typically range from 300 to 850, with 850 being the best possible score. Only you and the companies you authorize can request your credit from these credit agencies:
- Experienced: Experian uses personal financial information to compile consumer credit reports. It provides VantageScores ranging from 300 to 850, with 850 being the best.
- Equifax: Equifax uses your personal loans, credit cards, and payment history to create credit profiles. It provides VantageScores ranging from 300 to 850, with 850 being the highest possible score.
- TransUnion: Transunion is the smallest office. It collects personal financial information and offers VantageScores from 300 to 850, with 850 being the best possible score.
- FICO: FICO is the oldest and most widely used personal credit scoring system. Scores typically range from 300 to 850 but can range from 250 to 900 depending on the version of FICO used. FICO also offers the UltraFICO score, which is an optional credit model for people with scores below 680.
Lenders use personal credit to determine your creditworthiness and ability to repay debt. Since personal credit information often varies by credit bureau, it’s in your best interest to check your credit with each one. Fortunately, you can check your credit for free without affecting your score.
How Business Credit Affects Personal Credit
It’s important to understand how business credit affects personal credit so you can protect your personal and business credit scores. Creditors sometimes use your personal information to help verify your business application, especially when you don’t have enough business history to justify the risk. A healthy personal credit profile can bolster your business credit and improve your chances or approval of commercial products in the future.
How business and personal credit are calculated
Both personal and business credit bureaus evaluate different factors that make up your credit scores, including payment history, types of accounts and total available credit. Both business and personal credit measure your financial health; however, they are calculated differently.
How Trade Credit Is Calculated
Commercial credit considers several factors, including how long your business has been in operation, vendor accounts, lines of credit, open credit card accounts, annual income, loans, liens, and public information. However, depending on the credit bureaus and the scoring model, each factor may carry a different weight.
How personal credit is calculated
Top five factors, or the 5 C’s of credit, make up your personal credit score. These factors include payment history (35%), credit utilization (30%), length of credit history (15%), credit mix (10%), and new credit accounts (10%). . Together, your payment history and credit utilization ratio make up 65% of your personal credit score.
Personal Credit vs. Business Credit: How to Build Them
Having a good personal and business credit score is ideal. However, poor credit is more common than you think. If you have a bad credit score, You can build or improve your scores by focusing on factors like your payment history and the level of existing debt. If you don’t have credit, you can start building it in many ways, including opening a new credit card.
How to build business credit
Before you start building credit, you need to make sure your business information is correct and up-to-date. It’s also important to make sure all vendor payments are listed on your business credit report to reflect current activity. This will build your payment history and strengthen your company’s credit profile.
If you don’t have business credit, it’s worth building right away. One of the easiest ways to do this is to open a business credit card. When you’re building your business credit, it’s crucial to pay off all of your debt obligations in a timely manner. Your payment history is the most important factor that makes up your business credit score.
How to build personal credit
You can start building and improving your personal credit by paying off existing debt, opening a personal credit card, and making payments on time. Your payment history and credit utilization rate are the two most important factors that make up your personal credit score. As a general rule, You should always keep your total balances below 30% of your total available credit.
Personal Credit vs. Business Credit: Frequently Asked Questions (FAQs)
We’ve covered a lot of information about business and personal credit; however, you may have an outstanding question. Below you will find answers to the most frequently asked questions.
What is personal credit?
Personal credit is the financial information reported and compiled by consumer credit bureaus (Experian, Transunion and Equifax). These credit bureaus use your personal information, including lines of credit, loans, and credit cards, to produce a three-digit credit score that represents your creditworthiness to potential lenders and creditors. Scores typically range from 300 to 850, with 850 being the best score.
Can business credit affect personal credit?
Although business credit and personal credit are mostly separate, they can affect each other. For example, in some cases, lenders and creditors request your personal credit to qualify you for business credit products. For that reason, it’s crucial to always maintain a strong business and personal credit history.
How do I build my business credit without using my personal credit?
You can build your business credit without your personal credit by getting an EIN. You can then use that number to ensure that your business information is attached without your personal information. the use of a EIN helps keep bank accounts, loans and business credit cards without a personal guarantee, and independent of your personal credit.