Personal Credit and Business Credit

credit
Personal Credit

Credit is everywhere in our lives, and without it things can get pretty difficult to function on a daily basis. People tend to assume that credit is credit and when it comes to business there is no difference. This is completely false, and you must be on top of your personal credit, and if you have a business, establish business credit completely separate from your personal credit. Personal credit is for exactly what it implies, your personal things, like a house, a car, major purchases, etc. Mortgages, car loans, school loans, store cards and credit cards usually make up a personal credit file. This credit file is established when you open a bank account and/or request credit from a company (credit, auto, bank, store). This credit file will be with Equifax, Experian and Transunion, the three major credit reporting agencies. These agencies will keep track of every time you apply for credit, how many companies grant you credit, how well you pay your credit obligations, where you live, where you work and if relevant, who you marry. These are the things that are relevant to a personal credit file. None of the items in this file should be for a business you own/run. Your personal credit file should never be used for your business. You must establish a separate business credit file for each business you own/run.

Business Credit

A business credit file is something that every business owner should have completely separate from their personal credit file. When you apply for an Employer Identification Number (EIN) or more commonly known as the business tax identification number, you register your business with the IRS for tax purposes. This EIN will be used to pay the business taxes, opening a bank account for the business and apply for credit for the business. Unlike a personal credit file that is established with one’s Social Security Number, the EIN alone does not establish the business credit file. You as the business owner/manager must take the extra step and also apply for a DUNS number from the Duns & Bradstreet company. This DUNS number works in conjunction with the business EIN number and then a credit file for the business is established. A business credit score is called a Paydex score, which like personal credit files, is keeps track of the credit obligations, and the payment history of the business. Once you establish a few credit files with various companies, your business credit file will be available and you can apply for loans and other major purchases under the business, and never having to use your personal credit.

Intermingling

 Sometimes, personal and business credit intermingle, but you should always strive to keep them completely separate from one another. Keeping them separate from the beginning will ensure you keep them distinct from one another. If you use your personal credit to establish the business, try to make it separate as soon as possible. I know that sometimes the type of business you have doesn’t require the need for credit and you will use your personal credit to open up shop and keep it running, but the sooner you separate yourself from the business, the easier it will be to keep your personal and business funds from intermingling. The intermingling of funds and lack of business records keeping are the major downfalls for many start-up businesses. Once you intermingle funds/credit, it becomes easy to continue doing the practice, making it difficult to separate the two down the line. If you need assistance is establishing your business credit, repairing your credit, or just want guidance on your future credit/business endeavors, feel free to contact me for a consultation.