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| The Comparison Between Personal and Business Credit |
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As a small business owner, you need to be concerned with the comparison between personal and business credit. If you do not differentiate between your personal credit and your business credit, you could quickly ruin your personal credit score with your business purchases. Remember, businesses have far different credit needs than people do, and if your business purchases become a part of your consumer credit info report, you will be in trouble.
Many times small business owners think that just because they fill out a secured credit card application with the name of their business, instead of their name, on the card, they are now working with business credit instead of personal credit. However, this is not true. Unless a credit card is not tied to your personal guarantee, you are personally responsible for the money you spend on that card.
The first step towards understanding the comparison between personal and business credit is to understand what an employer identification number is. An employer identification number (EIN) is like your personal Social Security number. This is the number you use to identify your business with the IRS. If you do not have an EIN, you cannot get business loans or credit cards that are separate from your personal credit. The first thing to do to separate your business and personal credit is to apply for an EIN. These numbers are released to businesses that are structured as corporations or LLCs, not sole proprietorships. Keep that in mind when structuring your business.
Once you have an EIN, find a few lenders or vendors with which you can open lines of credit that actually report to the business credit bureaus. Not all businesses do, because it is not required by law. Ask lenders or vendors whether or not they report. Choose lenders that do report, because the only way you can build a credit score for your business is to have your business loans, lines of credit, or credit cards reported to the bureaus. When you apply for credit, use your business’s EIN and not your Social Security number. Remember, you want to separate the two credit histories completely.
Personal credit has a credit score that is somewhere in the range from 300 to 850, with 650 or higher being an excellent score. Business credit scores, on the other hand, fall somewhere in the range of 0 to 100. A business credit score of 75 is considered a great score. Business credit scores are calculated by four agencies: Dun and Bradstreet, Experian Business, Equifax Business, and Business Credit USA. Personal credit scores are figured by Equifax, Experian, and Trans Union, which are separate reporting agencies. If you are unsure whether a loan or credit card is personal or business, where the business credit card account or loan report is being sent
Remember, unless you take the proper steps to separate your business credit from your personal credit, they will not be separate. Take the time to separate them, build your business credit, and you can have both a healthy personal credit score and a successful business. By understanding the comparison between personal and business credit, you can succeed in all of your financial goals.
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