Your creditworthiness is considered whenever you apply for a loan or a credit card, and it’s also sometimes considered under other circumstances, such as when you’re trying to get a new cell phone or applying for a job. If you’re a small business owner, can your personal credit affect your small business?
Personal Credit Versus Business Credit
Experts usually recommend keeping your personal credit and your business credit separate as much as possible. Your business credit is tied to your Tax ID Number (TIN) or Employer Identification Number (EIN) rather than your Social Security Number. You can apply for an EIN online and you should receive it in a short amount of time. If your business is a sole proprietorship, you don’t really need to have an EIN for tax purposes, but you do need one if you want to establish separate business credit.
Equifax and Experian provide both business credit reporting services and personal credit reporting services. There are also credit reporting services geared just to businesses such as Dun and Bradstreet.
How Important is It to Establish Business Credit?
Your business may need credit to make purchases or to buy business insurance. If you want to take a loan in the name of the business, potential lenders will want to review your business plan, your business financial statements, and your debt-to-credit ratio. Business credit can be useful to help you grow your business and to protect your own personal credit. Once you have an EIN number, open a business checking account and work with vendors that report to the credit bureau. You may want to apply for a business credit card and use it rather than your personal credit card to pay business expenses.
Like your personal credit, it’s important to be responsible for your business credit. Pay vendors and credit lines on time or early. Keep an eye on your business credit report to make sure it’s accurate. Unlike consumer credit reports, your business credit report isn’t free, so you’ll have to pay a fee to access it.
Your Personal Credit
If you haven’t established business credit, potential creditors will look at your personal credit score and your credit history. If you have a poor credit score or a history of late payments, it can affect your small business since you may have trouble getting business financing when you need it. Relying on your personal credit instead of establishing business credit may damage your personal credit score if your business runs into financial difficulty.
Protecting Your Credit
Be proactive about protecting both your personal credit and your business credit and keep them separate as much as possible. Always make payments on time on both business and personal accounts and avoid borrowing more money than you can afford to pay back. To help protect your personal credit, review your personal credit reports and make sure there are no errors. If you find any errors and need help disputing them, get in touch with Dovly, an AI credit engine. We want to empower you to get ahead financially. Try it risk-free with our free membership tier.