Is there a difference between a business credit report vs. a personal credit report?
The separation between your personal credit and your business credit can be tricky for small businesses, especially when you ARE the business. Experts recommend having a clear distinction between your personal and business finances as far as that’s possible. Building business credit aside from your personal credit is part of that equation.
To some extent, your business and personal credit may remain linked, no matter how hard you work to keep them separate. For example, if you’re applying for financing and don’t have a long enough business history to qualify, you may need to add your personal guarantee into the mix.
What’s the Difference Between Business and Personal Credit?
Your personal credit is connected to you by your Social Security number. Your business credit history is linked to you by your Employer Identification Number (EIN) or Tax ID Number, which is how the government recognizes your business for tax purposes. You can apply for an EIN online and receive it almost instantly. Technically, if you’re a sole proprietor, you don’t need an EIN for taxes, but to establish business credit, you will.
Your personal credit history is curated by the three major credit bureaus, Equifax, Experian, and Transunion, and you have one profile with each. Experian and Equifax also have business credit reporting services. Your business profile is separate from your personal credit history.
There are credit reporting services that only deal with businesses, with Dun & Bradstreet being the largest and best known. If you have more than one business, you can have a separate report for each, if it has its own EIN.
Personal vs. Business Credit Scores
Your personal credit is frequently summarized into a single number that helps creditors see where you stand at a glance. FICO is the most commonly used method of scoring personal credit. There is no equivalent for businesses; each commercial credit bureau scores and reports its own way.
The most important factors for scoring businesses are usually how you pay your bills, how much debt you carry, and what type of industry you’re in. Business credit scores have fewer variables than FICO scores, and it is easier to improve the score for a business than it is for an individual.
On the downside, there are fewer legal protections for business credit. Consumer credit laws allow you to challenge anything on your report and have incorrect negative entries removed. There are no such laws when it comes to commercial credit, which means if there are issues with your business credit report, you could have a much tougher time getting those dealt with. You can challenge discrepancies with the agency that has them listed, but they don’t have to respond.
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