While you may be aware that personal credit and business credit are two different things, you may not be aware that your personal credit can affect your business and vice versa. Here are the main differences between a personal and business credit:

What is personal credit and business credit?

• Social Security Number (SSN) is used by the creditors to prepare a personal credit score.
• Employer Identification Number (EIN) is used by the credit agencies to create a business score.
• SSN is a unique number assigned for life whereas EIN can be different for each business owned.
• Personal file created on the basis of SSN stays with the owner and reflects every single detail while there can be multiple credit files depending on the number of business entities.
• Business credit capacity gives much more ability to generate capital than personal credit which makes it easier to grow business with business credit rather than personal credit.

What role does personal credit play in a business venture?

• A business credit score is built over time wherein business owners have an extensive personal credit history.
• Lenders use personal credit score to determine the kind and amount of business credit that will be offered and the rate of interest that will be charged only if the business is a sole proprietorship.
• Though a strong personal score is valuable, it is not enough to secure a business credit as personal credit is not a strong precursor to business behavior.
• Using personal credit score to leverage business credit will hamper personal credit if business downsides.

Why is the credit rating needed?

Growing or expanding a business can become better with a good credit rating. As it:

• Makes available cash with the best rates.
• Keeps business afloat in bad times.
• Provides trade credit from trade vendor.
• Maintains healthy cash flow.
• Helps to expand the business.
• Helps in getting business credit cards with rewards.
• To encourage people, client, suppliers, and business partners to become willing to work with a person with good credit rating.

What determines a business credit rating?

Business credit rating reports are based on:

• Business demographics like a number of years in business, line, and size of business.
• Public records like liens, judgments, and bankruptcies.
• Trade payment history.
• Financial payment history like trends of repayment.
• Information about owners of the business such as their personal credit scores.
• Information about the guarantors of the business.

How can I improve my business credit rating?

• Keep your business financially healthy.
• Establish and maintain consistently good relations with suppliers and vendors.
• Ensure timely payments.
• Open a business bank account.
• Obtain a business credit card with rewards.
• Obtain an Employer Identification Number.
• Don’t use all the unavailable credit unnecessarily.
• Minimize any outstanding debt and repay as soon as possible.
• Apply for credit only when needed for sure or one can go for a business credit card with rewards.
• Keep your personal finances separate from commercial and business finances.
• Open a business credit file with a credit agency.
• Monitor your business credit regularly.

Can I start a business with a bad personal credit score?

It is not easy to find the capital to start a business when you have a poor personal credit score but it is possible to start a business with a bad personal credit score. In order to do so, you must be aware that:

• Using your personal savings is the most obvious option.
• Check your retirement account option.
• Take a loan from family or friends.
• Use social lending sites on the internet where members borrow or lend to each other by getting direct access to fund lenders. Such loans are personal loans but they can be utilized for starting or running a business.
• Microfinance organizations who aim to help upcoming small businesses when they are unable to procure finance from traditional lenders like banks.
• Make an effort to locate government grant programs as the government aims to help in starting of new businesses.

A secured Business Credit Card with rewards is another option for securing credit, but these require a security deposit of $500. Business Credit Card with rewards offers savings and cash back for all types of businesses.