The Link Between Personal and Business Credit Scores: What You Need to Know

Last Updated on December 22, 2022 by Selina Parker

When you’re a small business owner, it’s essential to know all about credit scores – personal and business. The two are often intertwined, as lenders will consider both when making lending decisions. That’s why it’s crucial to be proactive in monitoring your credit scores and stay on top of any changes. Want to know more about building business credit and personal business credit the right way?

Read on for everything you need to know about the link between personal and business credit scores!

What is personal credit?

Going back to basic, personal credit is a record of an individual’s past borrowing and repayment history. This information will generate your credit score, a three-digit number lenders use to assess creditworthiness. A high score means you’re a low-risk borrower, while a low score indicates you may be more likely to default on a loan or make late payments.

The three most significant credit bureaus- Experian, Equifax, and TransUnion, are collecting data from your Social Security Number and financial history to generate a report. Financial institutions then use this report to decide whether to lend you money and at what interest rate.

It’s important to note that personal credit scores range from 300 to 850, with 850 being the highest (and best) score you can achieve. Anything above 700 is an excellent personal credit score, while anything below 600 is poor.

What is business credit?

Similarly, business credit records a company’s borrowing and repayment history. This information will generate your business credit score, which lenders will use to assess the risk of lending to a particular business.

Your business credit score will range from 1 to 100. Having a 75 score is generally considered good, while anything below may make it challenging to secure financing.

Like personal credit scores, a high score means the business is a low-risk borrower, while a low score indicates the company may be more likely to default on a loan or make late payments. So you have to build business credit the right way so you will be easily eligible for a small business loan.

Does personal credit affect your business credit?

The simple answer is: yes, it can. If you’re a small business owner just starting, you will be using your credit to help finance your business. Your personal credit history will be one of the first things lenders look at when assessing your business’s creditworthiness.

Banks often rely on business credit scores and FICO scores in their decision-making process. So, if you have a high personal credit score, this will likely boost your business and help you secure financing at more favorable terms.

While a solid personal credit score can help your business get started, it’s essential to build up your business’s credit history and score to access financing on your own.

Once your business has established itself, lenders will be more likely to base their lending decisions on your business’s credit history and score rather than on personal ones.

In short, while a solid personal credit score can give your business a leg up, it’s important to eventually establish a strong business credit score to access financing on your terms.

How are personal and business credit scores linked?

Now that we’ve covered the basics of personal and business credit scores, let’s look at how they’re linked. Here are three ways your credit score can affect your business:

• If you’re a sole proprietor, you have to report your personal and business credit scores to business credit reporting agencies
• If you’re a small business owner with a limited company, lenders will have to check your credit score to assess your business’s creditworthiness.
• The lenders may have to review your credit score if you’re a guarantor on a business loan.

How to keep both your business and personal credit score healthy

Know both your business and personal credit score

Knowing both your personal and business credit score is essential for two reasons. First, it will give you a better understanding of your overall financial health. Second, it will help you identify any potential red flags that may make it challenging to secure financing in the future.

Keeping tabs on both your personal and business credit score is crucial to the success of your small business. By monitoring your scores regularly, you can catch any potential red flags early on and take steps to improve your financial health.

Regularly monitor both

Regularly monitoring your personal and business credit scores is the best way to catch any potential problems. Business credit bureaus like Equifax, Experian, TransUnion, and several websites and apps can help you keep track of your credit. While for your business credit report, you can check on significant credit reporting agencies Dun and Bradstreet PAYDEX Score and Experian Intelliscore Plus.

Additionally, many credit card issuers and banks now offer free credit scores to their customers. So, if you have a business credit card or bank account, be sure to check with your issuer to see if they offer this service.

Final Words

Bottom line? Personal and business credit files connect in more ways than one. For small business owners, it’s so important to monitor both and stay on top of any changes regularly. By doing so, you can help ensure the success of your small business.

Do you have any questions about personal or business credit scores? Let us know in the comments below!