Hope Business Solutions Group Newsletter: July 2023

Teressa McIntosh • Jul 03, 2023

Business Credit & Personal Credit: What's The Difference?

What IS a personal credit score vs a business credit score? What factors impact the strength of your lending power? If you have been following our newsletter for a while, you probably already know that business credit is credit that is obtained in the business's name and with the business's Employer Identification Number (EIN). If you build business credit the right way, your personal finances, assets, credit, and spending habits will not impact your business credit in any way. And if you know how to build strong personal AND business credit, you can open new doors to help you through these difficult financial times. Let's explore how this can be a benefit to you and your business and go over the differences between personal and business credit in-depth.

How Business Credit Works

Similar to your personal credit score, your business credit score is a way for lenders, creditors, and vendors to determine your business's ability to pay back debts. Unlike personal credit scores, though, business credit scores range from 0-100 and are often referred to as a PAYDEX score. The numerical range operates much like a traditional grading system, with 100 being perfect credit. Typically any PAYDEX score higher than 76+ is considered good and 80+ is excellent business credit.

Here are a few other key differences between business and personal credit score factors:

Payment History: One of the main differences between personal credit scores and business credit scores is that a business's PAYDEX score is based almost solely on whether the business pays its bills on time. Paying on time is a crucial factor in the business world, and there is very little wiggle room when paying your lenders/creditors as a business. A business can be only one (1) day late on a bill and it will show up on the business credit report!
Utilization: As opposed to personal credit, businesses are not penalized for having high utilization. As long as the business pays it's bills on time, the amount spent on each account has no negative impact on the credit scores. Often times, the creditor will only report the amount spent instead of the credit limit, so having larger balances reflects a higher credit line and increases your chance of getting approved for higher-limit lines (please keep in mind, you should make sure you are only spending what you can afford to pay back because some accounts are due IN FULL at the end of the billing cycle!).
Length of Credit History: Believe it or not, a business can build a solid credit profile and 80+ PAYDEX score in 90 days or less! Whereas longevity is an important factor for personal credit scores, business credit scores are not as dependent on the length of credit history. Many higher limit business credit accounts will want to see other active tradelines on your report, but the age of the account usually does not matter.

How Personal Credit Works

Your personal credit score is a number that lenders, banks, and other institutions use to determine how likely they think you are to repay a loan. Personal credit scores range between 300-850, and are determined by the following factors:

Payment History: This factor makes up the largest portion of your score, about 35% of your total score. Late payments can cause significant damage and they can stay on your credit report for seven years so make sure you pay your bills on time!
Utilization: What is utilization? Utilization refers to the amount you spend on your revolving accounts. If your accounts are "maxed out", then you have a high utilization. This factor makes up the second-largest portion of your scare - about 30% of your total score. To ensure your utilization shows favorably on your report, make sure all of your balances on your revolving accounts stays below 30% of the total credit line. For example, if you have a $1,000 credit card, make sure your balance stays below $300.
Length of Credit History: This factor only accounts for about 15% of your credit score, but it is still important. Creditors and lenders like to see longevity on a credit report because it shows that you have a well-established history of paying on time and honoring credit agreements.
Accumulation of New Credit: When you establish a new positive credit line or loan, it will reflect positively on your credit report - in a way, it verifies your fundability to other creditors. This factor accounts for 10% of your total score.
Credit Mix: The mix of different kinds of credit on your report makes up 10% of your credit score, and that is because lenders and creditors like to see diversity in your credit profile. If you have several different types of accounts (as long as they are positive!) it means you have been found to be a reliable credit or loan customer by several different institutions, which is good!

Benefits of Business Credit

Now that you have a better understanding of the personal credit world and the business credit world, here is a breakdown of a few other key differences between personal and business credit:

Liability: As a consumer, YOU are held liable for all personal debt. This means your assets can be seized if you default. If you build business credit, the financial responsibilities of your business will have no impact nor liability tied to your personal assets. This protects you as a business owner.
Access: Personal credit reports are protected by the Fair Credit Reporting Act (FCRA) and other laws that allow the consumer to monitor who has access to their credit report and what is reported, in some cases. However, business credit reports can be pulled and viewed by just about anyone, and 'removing' information from your business credit report outside of the statutes of limitations is all but impossible.
Approval Limits: This is the big one! On average, business credit approval amounts are 10 to 100 times higher than consumer credit lines.

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Want to Know How to Take Your Personal Credit to the Next Level?

We hope this information was useful to you, but if you want to take the next step in improving your credit score and your financial health, we have some additional resources for you....

If you would like a more in-depth guide to improving your credit, we have an amazing new e-book, "The DIY Credit Restoration Guide", including, "The Shocking Truth of What LexisNexis Has on YOU!" This is a great companion to our DIY Credit Program, or you can use it on your own to take your credit to the next level. VISIT OUR ONLINE STORE for more information.

One more thing...
We deeply appreciate all of our clients and affiliates, it is our sincere pleasure to serve you and be able to interact with all of our prior class attendees, contacts, and clients. Please consider leaving us a review on Google if you have enjoyed our services or one of our classes.

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