There are lots of things to think about when running a business, and more often than not, your main focus is going to be finance. Lots of business owners look to apply for business funding online as it’s fast, easy, and reliable. But there is one factor that will have a huge impact on whether or not their application is successful, and that’s their credit score. Everybody has a credit score, whether they’re a business owner or not. However, there are some differences between the two types of credit score. So, keep reading and find out more about how business credit differentiates from your personal one.
Firstly, your business credit rating and your personal one has very different purposes. Your business rating is used when you apply for business only financing, and your personal one is used for personal funding. They’re scored completely separately, meaning neither score will impact the other as they don’t interact in any way. You’ll only use your business credit rating when applying for business loans or credit cards etc, meaning it would never be used to apply for a private mortgage. So, their purposes are quite different, even if they’re similar concepts.
Their scoring is also worked out differently. Your business credit rating is calculated using information such as how long your business has been operating, industry risk, the size of your business, and even how long you’ve been building up a credit history. Your personal credit score is worked out using things like your income, if you pay your bills on time, how much debt you have, and how many bank accounts you have. Both scores can be impacted by a number of things, but a key one is maxing out credit cards and not paying your bills on time. As your scores work independently from each other, you can build them up separately. This also means if you miss a bill in your personal life, your business score won’t be affected. So, while both of the scoring systems can be impacted by similar things, they won’t be affected by each other.
Business Financial Borrowing
When you run a business, you’ll come to a time where you want to borrow some money whether it be in the form of a loan, credit card, or even an overdraft. You’ll need a business credit score to be able to apply and hopefully be approved, and typically, a lender wouldn’t look at your personal credit score in this situation. However, if you don’t have a business credit score because you’ve only just started out and haven’t have the time to build it up, then the lender may ask to see your personal one instead. This shows that while they’re independent from each other, they can be relied upon at times to demonstrate your risk and affordability to lend to.
Less Easy To Correct
One thing to note about your credit report, is that it might not always be 100% correct. Things like address changes can be missed out, leading your credit report to be inaccurate. Normally you can contact the credit reference agency and ask them to correct it on your personal report. However, when it comes to your business credit score, it can be a lot harder to get things corrected. This is because the issuer isn’t required to make changes or respond to any queries about your business credit rating. Whereas, with your personal one, they have to. So, with your business credit score, it’s very important that you keep a close eye on it, as you may spot more errors than you thought.
Ownership Can Change
When you have a personal credit score, it will stay with you for life. However, a business credit rating is only directly related to that specific business. This means that if you sold your business, that credit rating will go with the new owner, and you’ll no longer have anything to do with it. A lot of the times, when people are looking for businesses to buy, they’re looking for good credit scores so that they don’t have to work to get it up once they’ve bought it. You may find that the higher the credit score, the more value your business has too.
Credit ratings are important in both business and your personal life, so you need to know the difference between the two. You want to make sure you do everything you can to ensure that they’re well maintained, and you check them regularly to rule out any errors. So, now that you know the difference between credit scores, you should be able to manage them a lot more effectively and hopefully keep them at a high rating for a long time to come.
Mashum Mollah is an entrepreneur, founder and CEO at BloggerOutreach.io, a blogger outreach agency that drive visibility, engagement, and proven results. He blogs at Blogstellar.