Understanding Personal vs. Professional Credit

Sep 20 • Finance • 401 Views • Comments Off on Understanding Personal vs. Professional Credit

We’ve all been affected in some way by our credit score. But what about when you are trying to start a business? Of if you have an established business and you would like to obtain some business credit. How will your personal credit affect your ability to obtain professional credit? How will your new professional credit affect your personal credit? Can (or should) I combine my personal and professional credit?

These are all very important questions to understand the answers to when you’re ready to start looking into professional credit. Here are answers to some of those more common questions:

Is My Personal Credit the Same As My Professional Credit?

Luckily, no. You have two separate credit reports: your Consumer (personal) Report and your Business (professional) Report.

Does My Business Have A Credit Report?

Maybe yes, maybe no. It depends on how you have set your business up. You are given a business credit report if you have set your business up legally as a sole proprietorship, LLC, etc. You will also have to instruct your lenders to report your activity to your business credit report, and not your personal credit report.

Can I Combine My Personal and Professional Finances?

You can, but you definitely shouldn’t. This is a mistake that many new business owners make. What is the harm in this? You are providing yourself, as well as your business, with no protection. It is always a much better idea to keep your business finances completely separate from your personal finances. If something goes wrong with your business, and you have those finances and reports combined with your personal finances and reports, you are at the risk of losing everything. On the contrary, if you have kept those finances and reports separate, your personal assets have a different level of protection.

Who Can See My Business Credit Report?

With your personal credit report, only the people you’ve given permission to can view it. That is not the same with your Business Credit Report. Your business credit report is not protected in the same way as your personal credit report. That means that anyone has the ability to view it. This is because they feel it gives potential lenders, as well as employers/colleagues a better ability to determine your reliability before going into business with you.

How is My Professional Credit Score Calculated?

Lexington Law has explained the makeup of your business credit score. They said,

“While your personal credit is graded on a point-scale of 350-850, your business credit ranges from 1-100. To determine your score, the credit bureaus (TransUnion, Experian, and Equifax) each use their own scoring model. Many factors play a role, including:

  • Basic information – legal documentation, public records, etc.
  • Credentials and payments – current lenders and a complete payment history
  • A list of active and past loans, including amounts
  • Collection information, if applicable
  • Business size, years of operation, Standard Industrial Classification (SIC), etc.”

Conclusion
As you can see, your professional business score is very different than your personal business score. It is important to know that it is vital to keep your professional finances and report completely separate from your personal finances and report. It is also important to know that your business credit report is accessible to anyone, and it can affect you in many ways. So, just as important as it is to keep a good personal credit history, it is just as important (in some cases, maybe even more important) to keep a good professional credit history.

This article was written by guest author Nicole. She enjoys teaching people about credit and credit scores.

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