What is the Difference Between Business Credit and Personal Credit?

This is a common question that arises when business owners start looking to get a small business loan. Understanding the difference now can help your business later.

There are two major differences between business and personal credit.

1) Personal credit can be fixed over time and business credit can’t.

Even if you don’t do anything, negative information will fall off your credit report in 7-10 years.

Business credit does not work in the same way. Just a few negative reports on your business credit report can ruin your business credit forever under your company name. Business credit is actually easier to obtain than personal credit, but it is much less forgiving if you make mistakes.

2) The other major difference between business and personal credit is the amount of credit you can utilize from each creditor.

Let’s assume that you have a personal Visa with a $10,000 credit limit. You use your credit card to charge $5000, thereby using 50% of the available credit. You have dropped your FICO score because you exceeded 30% of the issued amount of credit on that card. Business credit does not work that way. It is understood with business credit, that the user is going to fully use each line of credit to grow their business. If you have a business Visa with a $10,000 credit line and you charge $7,000 to your credit card using 70% of the available credit, you will not drop your PAYDEX score. The only thing that improves or hurts your PAYDEX score is your payment history. You simply cannot make late payments when it comes to business credit.