Personal vs. Business Credit Score: What You Need to Know

This article on business credit scores is a guest post by Eric Goldschein, an editor and writer at Fundera.

Your personal credit score summarizes your trustworthiness as a borrower in a single number. But did you know, if you’re running your own business, you actually have two credit scores? You have your personal credit score, but you also have a business credit score that indicates your borrowing history as a business.

It may be more to keep track of, but two numbers are better than one. Your separate personal and business credit scores help you measure and compare your financial responsibility as an individual and as a business owner.

In many ways, your credit scores are calculated using similar factors, and by the same credit bureaus. They differ in a few key areas, however, and can dictate what forms of credit you qualify for.

Here’s a guide to what you need to know about personal vs. business credit scores:

Personal credit score

Your personal credit score is important. As we’ll discuss, this score doesn’t just sum up your financial history, it also determines your financial future. Making sure your personal credit score is as strong as possible will require a solid amount of background information and financial know-how. It’s time to read up on how it all works:

Aggregated by three main bureaus

Depending on the creditor or debtor you’re working with, they’ll inquire with and report to one of three primary personal credit bureaus—Equifax, Experian, and TransUnion.

These three bureaus aggregate your financial information, like payment history, credit utilization, banking activity, and liens, to build your personal credit report. The personal credit bureaus access this information through reports from financial institutions, public records, and even through data exchanges amongst themselves. Your personal credit reports will all exist under your Social Security Number.

Calculated by one main model

Based on those personal credit reports, personal credit scoring models calculate your credit score. FICO is the primary model that lenders turn to, but the three credit bureaus collaborated to create the lesser-referenced VantageScore. Your FICO scores take precedence 99% of the time, so start out by understanding the ins and outs of how this model works.

FICO doesn’t reveal its proprietary calculation. But it’s generally acknowledged that the FICO model weights the information from your personal credit report as follows:

• Payment history: 35%

• Credit utilization ratio: 30%

• Length of credit history: 15%

• New credit: 10%

• Type of credit used: 10%

Based on this calculation, FICO creates your personal credit score within the range of 300 to 850.  Keep in mind that there are multiple generations of the FICO scoring model, many of which are still active. The FICO 8 scoring model is the most widely referenced, but FICO recently released FICO 9, which might gain traction as time passes.

Required for most personal debt and credit applications

Whether you’re applying for a personal credit card, a mortgage, or a car loan, you provide your Social Security Number. This is so potential creditors can check your personal credit score. For most personal credit card and debt applications, prospective applicants can see a minimum personal credit score requirement. This way, applicants can choose to apply for products they have a chance of qualifying for.

This upfront information not only saves you time, it will also save you from a hard credit inquiry on your credit report. To check your personal credit score for your application, most financial institutions will perform hard credit inquiries, which will show up on your credit report for up to a year and potentially lower your personal credit score one to five points.

Required for most business debt and credit applications

Did you know that your personal credit score is one of the most important pieces of information for business debt and credit applications, as well? It’s counterintuitive—you’re supposed to keep your personal finances separate from your business finances, after all.

That said, most business lenders and credit card issuers see your personal credit score as an indicator of your overall financial responsibility. Business credit cards come with minimum personal credit requirements, and almost every business lender includes a personal credit check in their underwriting processes.

Business credit score

Now that you’re familiar with the details of personal credit scores, it’s time to consider their business counterparts. The factors that go into your business credit score mirror those of your personal credit score in many ways. That said, there are a few key differences that are important to understand. Let’s take a look:

Aggregated by three main bureaus

Just like your personal credit history, three primary credit bureaus aggregate your business credit report: Dun & Bradstreet, Experian Business, and Equifax Small Business. These three business credit bureaus collect data attached to your Employer Identification Number from vendors, financial institutions, and public records.

Calculated by the same three bureaus

Unlike your personal credit scores, though, the three main business credit bureaus calculate your business credit scores in-house. There’s no end-all, be-all business credit score equivalent to the FICO personal credit score.

Each business credit bureau produces their own business credit score from their own reports, but their scores incorporate similar information. This includes:

• Credit and debt payments history

• Trade payments history

• Business size and age

• Your business’s overall financials

That said, the three different credit score calculations produce totally different ranges of scores. The Dun & Bradstreet Paydex score ranges from 1 to 100, the main Equifax Small Business score ranges from 101 to 992, and the Experian Business score ranges from 0 to 100.

Plus, there’s no telling which of these scores your creditors will reference. To cover all your bases, request a D-U-N-S Number, which is necessary to access a Dun & Bradstreet business credit score called a Paydex score. Equifax and Experian automatically collect your business’s financial activity, so there’s no setup required.

Only required for applications for the most premium business debt

Finally, business credit scores don’t receive as much emphasis because they aren’t as widely referenced. Whereas your personal credit score will be a factor in almost any financial application you submit, your business credit score will only play into specific business loan applications.

Many traditional bank lenders reference business credit scores in their underwriting processes. Additionally, most SBA lenders require applicants to undergo a business credit check.

That said, most alternative lenders and business credit card issuers will simply look to your business finances—like your bank statements, tax returns, and outstanding debt—to get an idea of your business’s financial health. Beyond that, they’ll typically consider your personal credit score, along with the personal credit score of any co-owners you work with, to understand your borrowing history.

Nonetheless, many business lenders and credit card issuers will report your account activity to business credit bureaus. As a result, you’ll be able to build your business credit with responsible borrowing.

Personal vs. business credit score: The bottom line

There you have it—all the most important details on the differences between your personal and business credit scores. It’s easy for your business credit score to get swept aside with all the attention personal credit scores typically receive. As the gatekeeper to affordable financing, a good personal credit score is extremely important. However, if you aspire to access some of the most premium business financing products, then you need to get your business credit score in order, too.

ABOUT THE AUTHOR

Eric Goldschein is an editor and writer at Fundera, a marketplace for small business financial solutions. He covers finance, marketing, entrepreneurship, and small business trends.