The Difference Between Business Credit and Personal Credit

A woman working from her kitchen table reads over her bank statements with her laptop and calculator nearby.

This article is for educational purposes and does not constitute legal, employment or tax advice. For specific advice applicable to your business, please contact a professional.

As your business looks to grow, you may need money to fund the expansion.
Say you want to purchase a second food truck to serve a new area, or you need to buy a new freezer so you can add ice cream to your coffee shop’s menu — these are just a few of the business expenses that need capital to support them. When a business first opens, it has no credit history, making it challenging to get loans and a credit card.
While you may be tempted to turn to your personal credit, experts recommend keeping your business and personal credit separate to limit personal liability.

What is business credit versus personal credit?

While your personal credit details your history of borrowing, opening credit cards and payment and credit history, your business credit shows the same types of activities made on behalf of your business. Your business credit score, similar to a personal credit score, represents the creditworthiness of your business based on your business credit. Like a personal credit score, lenders use a business credit score to evaluate a business’s application for credit.

Experian says that your personal credit score can affect getting business credit if the lender checks your personal credit as part of the approval process. If this check is performed, it registers as a hard inquiry on your personal credit report. Business lenders report business credit activity to consumer credit agencies, so this negative or positive activity can affect your personal credit score.
Using business credit — such as a business credit card — helps you increase your business credit score and allows you to more easily get credit in the future. Purchases you make for the business on a personal credit card do not build business credit.

What is the difference between a business and a personal credit score?

To establish a business account and begin building your business credit, you need to use an Employer Reference Number (ERN, also known as a PAYE reference number), whereas a personal credit account works with your Social Security number. Many businesses start establishing business credit through a credit card with a lower limit and build credit by paying on time.

A personal credit score ranges from 0 to 999, with scores over 881 considered good credit scores.

However, a business credit score ranges from 0 to 100, with lenders considering scores over 75 to be a low credit risk. In addition to influencing an approval or denial, the score can determine repayment terms and interest rates.

Should you use personal credit for business purposes?

Using your personal credit for business is not a great idea. Experts caution against mixing personal and business credit. By using business credit solely for business purposes, it helps you increase your business credit score and allows you to more easily get credit in the future. Purchases you make for the business on a personal credit card do not build business credit.

Using a business credit card or trade credit also makes it easy for employees to make approved purchases. For example, if you don’t have a business credit card and your head chef wants to go to a farmers’ market for fresh local produce, you’ll need to reimburse them for the purchase (which creates extra paperwork and does not help build your credit).

Types of business credit

Businesses can apply for a wide range of business credit and loans. Here are a few of the most commonly used:

Short-term loan: A quick injection of cash that could be for a term between one month and two years.
Long-term loan: A chance to lower your repayments over a longer period, sometimes as much as 20 years.
Fixed rate: Monthly repayments are set for a specific term.
Variable rate: Repayments fluctuate depending on the market rate.
Working capital loan: These loans fill financial gaps that could cause serious damage to a business, making them a good short-term solution.
Commercial mortgage: Mainly for business owners who are looking to buy property or land for commercial use.

The financial health of your business can determine its long-term success. Start your business off on the right foot by opening a separate business checking account, requesting an ERN to identify your business, and applying for a business credit card. By actively protecting and managing your business credit score, you can grow your company and continue to serve customers for many years in the future.