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Personal Credit v. Business Credit - What's the Difference?

Personal Credit v. Business Credit - What's the Difference?

 A variety of different factors come together to create your personal credit score. Different lenders take different types of information into account when deciding if a person is a viable lending option – be it for a business or personal loan. One thing does hold true however: personal credit matters. It matters because it will affect whether you can rent or buy a house, buy a car and it will even effect your chances of starting your own business. Virtually every small business owner in the United States can tell you, good personal credit can make all the difference when it comes to getting a business loan, because even your personal credit can affect your business credit.

Since October 2001 when the Patriot Act was passed you must supply a bank with both your business information and your personal information. This means that if your business credit is strong, but your personal credit is weak, you will have a harder time securing funding – you become a guarantor for your business.

All lenders will look at a persons personal credit history as a measurement to determine a persons financial future. The better your personal credit score, the more likely you are to pay your bills on time and use your credit wisely. Your credit score determines your financial stability in the eyes of lenders – and these scores can range anywhere from 300 to 850, with a higher score being better. Three credit agencies, Experian, Equifax and TansUnion, compile these scores based on the information in your credit file. Five main components make up your score: Payment history (35%), Amount owed (30%), Length of credit history (15%), New credit (10%), and Types of credit in use (10%). 

Knowing your personal credit score is extremely helpful not only for your personal finances but for your business as well. Your personal credit does affect your business credit. Business credit is considered an asset or economic resource that makes up the financial foundation of a company. The creditworthiness of a business is an indication of how likely it is to make timely re-payments on a business loan. But it’s more than that – suppliers, vendors and landlords also look to your business credit score to gauge whether they should do business with you. Business credit is typically calculated using a Dun and Bradstreet PAYDEX Score – a unique, dollar-weighted indicator of a business’ payment performance based on the total amount of payment experiences in D&B’s file – gathered from suppliers and vendors that do business with you.

You can further help establish your business with good credit by abstaining from using personal credit and finances for your business – put all expenses in your business name and use a commercial bank account to pay your bills. Keep monitoring your business credit file to be sure it is up to date and accurate – this will help you be aware of any change in your ratings before it affects your relationship with your customers, suppliers or financial institution. 

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