Business Credit and Personal credit are often linked as one in the same, which can be true in some cases, but the accounts have separate financial histories. Personal credit is as exactly how it sounds, it is for your personal use. Personal credit is for student loans, auto loans, home mortgage, or personal credit cards. Business credit is also exactly as it sounds, for business use. Any loan or card linked to your business is then linked to your business credit. Let’s dive deeper into what each line of credit means.  


Personal Credit    

As already mentioned, personal credit is strictly for personal use. Additionally, your personal credit is tied to your Social Security Number (SSN). Taking out your first loan or obtaining a credit card is the start of your credit history and building a good credit score. To avoid having personal credit problems and a low credit score, you must pay bills on time, avoid using your credit limit to the maximum, and avoid negative information like charge offs. You can learn more about what makes up your credit score in this blog article.


Business Credit


Business credit is solely tied to business and is based on your business financial history. The credit is linked to credit needs such as taking out a small business loan or using a business credit card. While personal credit is tied to your SSN, business credit is tied to your Employer Identification Number (EIN) or business tax ID number. The EIN can be applied for online and is used by the government for tax purposes. With the EIN, your business credit history will go with you wherever you use that number. One downside to business credit is that you don’t have nearly as much legal protection compared to personal credit. 


Personal Credit Can Impact Business Credit


A common question people ask is, “does personal credit affect business credit?” The answer is yes, lenders may use a business owner's personal credit history to evaluate their creditworthiness, especially if the business is new or doesn't have an established credit history. Having good personal credit while trying to obtain business credit can help business credit with potentially lower interest rates and reasonable terms. Over time, a business credit score measures the health of your company by tracking how you manage its accounts. With enough business account history, lenders may look to that to establish credit worthiness without including analysis of your personal credit history.

    There may be clear differences between personal and business credit, but it may not always be “black and white” when trying to apply for specific loans or other lines of credit. The key thing to remember is that both these lines of credit will follow you forever. Be sure to always make payments on time, avoid negative information and charge-offs, and avoid using the entire line of credit all at once. For additional counseling about personal or business credit, visit with our personal bankers or business bankers.

Resources:

National Foundation for Credit Counseling (nfcc)

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