Can Your Personal Credit Score Affect Your Small Business?

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Starting your own business often costs quite a bit of money — and you may have to borrow some to get things off the ground. In the beginning, you may have to use your personal credit score to establish your creditworthiness with potential lenders, even if you intend to borrow with business credit.

As your business grows, it’s important to keep your business and personal finances separate when you can — but keep in mind that lenders may continue to check both your personal and business credit scores to decide whether to approve loans and other credit applications.

Key takeaways

It may take a year or more for small businesses to establish business credit and, in the meantime, lending decisions will be typically made based on personal credit scores.
As you build business credit, your personal score may carry less weight in business transactions, though it will likely still be considered.
If you fall behind on your business debt payments, the activity could be reported to consumer credit bureaus, impacting your personal credit score.

How are business credit and personal credit different?

A personal credit score tracks your personal credit history by calculating a number based on various factors, such as whether you make payments on time, how much debt you carry and other factors. Business credit scores are similar but track a business’s financial history instead.

As long as you keep your business and personal finances separate, the two scores will typically measure different things.

	Business credit	Personal credit
Common credit scoring models	PAYDEX Score, Intelliscore Plus, FICO SBSS	FICO Score, VantageScore
Score ranges	0-100, 0-300 (SBSS only)	300-850
Reporting agencies	Dun & Bradstreet, Equifax, Experian	Experian, Equifax, TransUnion
Reference number	Employer Identification Number (EIN)	Social Security number (SSN)
Common types of credit	Business loans, lines of credit, business credit cards	Mortgages, auto loans, personal credit cards

How personal credit affects business credit

Your personal credit score can affect the creditworthiness of your business or how likely you are to get funding, like a business loan or credit card.

For many small businesses, lenders will check your personal credit score to see if you’ve shown an ability to repay your debts. And you may be required to sign a personal guarantee to get funding, which makes you personally liable for the debt if the business fails. This means that the health of your business’ finances may also be able to affect your personal credit.

If your personal credit score needs work, you still have options for securing business financing, such as using a cosigner who has good credit. In addition, the Small Business Administration (SBA) offers loans for bad-credit borrowers, though there are other requirements you’ll have to meet.

Will business lenders always consider my personal credit?

If you have a solid business credit history, including a record of on-time payments and other signs of responsible credit usage, your personal credit score may carry less weight as your business grows. However, many small business lenders will continue to check your personal credit on loan applications, so it’s important to protect both scores for the best odds of approval.

Are you a sole proprietor?

If you operate a sole proprietorship, it’s important to remember that this business type does not create a separate legal entity, which means your personal and business credit are blurred in the eyes of lenders.

As a sole proprietor, there is no legal separation between you and your business, so you can expect lenders to check your personal credit for business loan and credit card applications — and business activity can impact your personal score.

How you can build your business credit

If you’re starting a new business, there are so many things to think about — but don’t forget to set up business banking services and start building a business credit history.

1. Open business bank accounts and credit cards

Keeping your business finances separate from your own finances protects you from risk, makes it easier to do your taxes and allows you to secure financing for your business. Start by registering your business and getting an EIN.

Once you do, business bank accounts for checking and savings, as well as business credit cards, can help you manage your finances. Bank accounts may not directly impact your business credit score, but your credit cards will, especially if you use them regularly for business expenses.

2. Ask vendors to report your transactions to credit bureaus

If you make purchases from vendors, you can ask them to submit a record of your payments to credit reporting agency Dun & Bradstreet once you apply for a DUNS Number. Many vendors are paid through invoicing, and those kinds of transactions can help your business credit score if they are reported.

3. Take out business loans or lines of credit

Once you’ve established your business, a small business loan or line of credit can diversify your credit profile and improve your overall amount of available credit. When you apply for a business credit account in the business’s name — with the business’s credit information — you establish a stronger business credit history, as long as you meet your debt obligations. Remember that opening too many accounts too quickly can actually hurt your score, and make sure you pick lenders that report to business credit bureaus.

4. Make regular, consistent debt payments

Like a personal credit score, your payment history is an important part of your business credit score. Consistently paying your bills on time will help your score grow; missing even one can hurt your score and cause it to drop. While other factors also play a role in those scores, your track record of timely payments matters a lot.

Advantages of using business credit

By keeping your business finances separate from your own, you may be able to protect yourself from some financial liability in case of business failure, though it varies based on your business structure and any documents you signed when getting funding, like personal guarantees.
Your bookkeeping and accounting should be less complicated if you use business credit instead of personal credit for financing.
You may have access to higher funding amounts at more favorable rates with business credit as opposed to personal credit, depending on the size of your business.
Business credit is designed to meet the specific needs of businesses with lines of credit, invoicing and integration with other business services.

Does business credit affect personal credit?

As long as you keep your personal finances separate from your business finances, you shouldn’t have to worry about your business credit having a significant impact on your personal credit. For example, an auto lender won’t check your business credit score when deciding whether to approve your application for a car loan — they would only consider your personal credit report and score.

However, if you become seriously delinquent on small business debt, a lender may report it to personal credit bureaus, depending on their reporting policies.

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