For business owners today, it’s very important to have both a personal credit score and a business credit score. This will help you separate your personal finances from your professional ones, making the tax season easier and for debt liability purposes. If you use your personal credit for your business, you risk creditors coming directly after you if your business falls on hard times, making you responsible for all incurred business expenses.

Today, we’re breaking down the difference between the two:

Personal Credit Score

Your personal credit score is your individual ability to pay a debt back. It is often summed up in a way that helps financial institutions understand your individual ability to manage finances at a glance. This can help a lender determine whether or not they should accept you for financing, for how much and on what terms. The better (higher) your personal credit score, the more financially reliable you are to a lender and the more likely you are to be accepted for financing. 

To determine personal credit scores, financial institutions take into account a mix of components like your payment history, the amounts you owe, length of credit history, types of debt owed and new credit.

Business Credit Score

Your business credit score is the ability of your business to sufficiently meet its financial obligations. A business credit score helps financial institutions weigh whether you would be a good candidate for financing and similarly, as with your personal credit score, the higher your business credit score, the more likely you are to be approved for financing. 

Business credit scores are most often evaluated by considering components such as payment history, credit available, public records and type of industry, though this is not an exhaustive list. Sometimes financial institutions also take your personal credit score into consideration when evaluating your business credit score. It is also often easier to improve your business credit score than it is to improve your personal credit score. However, having said that, it can be significantly more difficult to challenge charges on your business credit report.

Business credit scores are absolutely necessary for business transactions and many lenders will not consider financing to a business that does not have a business credit score. Among financing purposes, business credit is also important for other components of business security, such as insurance.