Business and personal credit scores both measure your creditworthiness by monitoring how much debt you have, and both are used by banks and lenders to determine if you will get approved for a loan, credit cards, lines of credit, and other types of financing. Personal credit scores can impact your ability to get a small business loan, but business credit scores cannot impact your ability to get a personal loan, like a mortgage. This is only one difference between the two types of credit scores.
By knowing the differences and similarities between personal and business credit scores, you can take steps to improve them, which increases your chances of getting approved when you need financing.
Personal Credit Score
A personal credit score is a three-digit score ranging from 300 to 850 that changes over time and is assigned to a person based on how many debts they have and how reliable the person is with making payments. It is monitored by the three credit bureaus, Equifax, Experian, and TransUnion.
It is used by lenders and banks to determine the risk they would be taking in giving that person money as a personal loan, personal credit card (rolling credit), and other financial products for non-business use.
The credit reporting agencies assign your score based on:
- The amount of debt you owe.
- How frequently you make and miss payments.
- The length of time you’ve had a credit history.
The types of credit you have can also affect your score, so having a mix of secured debt like a home mortgage and revolving debt including credit cards (if you pay off the balance each month) may work to get you a higher personal credit score.
The higher the number, the better your personal credit is. This works in your favor when you apply to finance a car, need a personal loan from the bank, or want a low-interest and high-reward personal credit card.
Business Credit Score
Business credit scores reflect how many debts your business owes to suppliers, lenders (if you have a business loan, business credit cards, etc.), and anything else that’s reported back to the three business credit bureaus, Dun & Bradstreet, Experian, and Equifax.
The three business credit bureaus provide their scores based on how many business debts are owed and how frequently payments are made, and each has different scoring models. Dun & Bradstreet has a unique name for their business credit score called PAYDEX.
The higher the score at any of the bureaus, the lower risk you are as a borrower, because your business has all the indications of being financially sound. When you have a high business credit score, it will be easier for you to get approved for business financial products like working capital loans and business credit cards.
How They Compare
Personal and business credit scores are very similar measurements in that they determine your risk level as a borrower. Also, both are assigned by three credit bureaus. But there are some strong differences. Take a look at the chart below.
|
|
Personal credit score |
Business credit score |
|
Credit bureaus |
Equifax, Experian, TransUnion |
Dun & Bradstreet, Experian, Equifax |
|
Score range |
300 – 850 |
0 to 100, 0 to 300, or 101 to 992, depending on the bureau |
|
Assigned to |
Social Security number |
Employee identification number |
|
Monitors |
Personal debts and payments |
Business debts and payments |
|
Time for debts to clear |
2 – 10 years according to Experian |
No set time limit |
|
Allows errors to be corrected |
Yes |
Yes |
|
Used to evaluate applications for loans, credit cards, and lines of credit? |
Yes |
Yes |
|
Do you have a legal right to a free credit score report each year? |
Yes, under the Fair Credit Reporting Act (FCRA). |
No |
|
Uses age and total income/revenue |
No |
Yes |
|
Publicly available |
No |
Yes |
Personal credit scores may be required if you apply for a business loan. Some examples include if your business does not have a long enough financial history, or you don’t have a separate business bank account. If your personal credit score is bad, it could impact your company’s ability to get business financing.
Business credit scores do not impact your ability to get financing for cars that are for non-business use, personal credit cards, and home renovation loans, as you’ll be making personal guarantees that are separate from your business. A business credit score is on a scale of 0 to 100, 0 to 300, or 101 to 992, depending on the bureau, while a personal credit score tends to range from 300 to 850. And the higher the number on both, the better your financial standing.
Personal credit scores have laws protecting individuals like the Fair Credit Reporting Act, while there are no laws specifically controlling business credit scores. With that said, the FTC has launched inquiries like this one where they are looking at how scores are determined to make sure they are fair to small businesses.
Both types of credit scores are recorded and assigned by three independent third parties, and they’re both used for evaluating your creditworthiness. Because they are independent and each can report on different debts owed, you may have different scores at each bureau.
When you’re applying for a personal credit card or a business loan, ask the lender or financial institution which bureau they use. You can work at improving your credit score with that specific bureau, which may increase your chances of getting approved. While personal credit scores are not publicly available, business credit scores might be. This is because personal credit scores would reveal personal information, which is protected.
Both business and personal credit scores are used to evaluate your risk as a borrower when you apply for loans, leases, credit cards, and financial products. If you have a higher credit score, your chances of getting approved for business and personal financial products will be higher. When you have bad personal and business credit scores, your chances are lower. This is why it is a good idea to check your scores once a year to see how you can improve them.
National Funding does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal and accounting advisors.
