Does Business Credit Affect Personal Credit?

Kevin Claypool, Client Portfolio Manager, First Republic Bank
September 13, 2022

  • Business credit can affect your personal credit if you have trouble paying off business debts.
  • If you use your personal credit cards or personal bank accounts to do business, you may find that business expenses affect your own credit significantly.
  • The more separation you can create between business and personal credit, the less likely one will affect the other.

Many business owners rely on some sort of financing to start or operate their company. This might take the form of a loan, a line of credit or other borrowing options. Just like borrowing or carrying personal debt, business financing holds sway over your company’s credit.

Does business credit affect your personal credit? The answer is complex. Business credit can influence your personal credit depending on several factors, including the amount of time you’ve been in business and any personal guarantees you have to provide for financing. These are just a couple of factors behind whether your business credit can affect your personal credit, however.

What is business credit?

Business credit allows you to borrow money to help pay for short- and long-term expenses. Your business credit score and report measure your company’s history with borrowing, credit utilization and repayment history, all of which lenders use to determine a company’s creditworthiness. This is similar to your personal credit score, although business credit score ranges can vary depending on the credit reporting agency, whereas personal credit scores usually range from 300 to 850 no matter which of the three main credit agencies you use.  

Understanding business credit vs. personal credit

Business and personal credit differ from one another along several dimensions, including reporting agencies and what each credit score is associated with in terms of identification.

  Business Credit Personal Credit
Credit History Tied to Business credit history, business finances Personal credit history, personal finances
Credit Score Associated with Employee Identification Number (EIN), DUNS number, Unique Entity ID Social Security number
Credit Reporting Agencies Dun & Bradstreet, Equifax, Experian Equifax, Experian, TransUnion
Credit-Funding Opportunities Business credit card, business loan, business line of credit, tradeline Personal credit card, personal loan, personal line of credit

How business credit affects personal credit

Business credit is often linked closely with your personal credit. Your track record with business borrowing and repayment can therefore affect your personal credit history significantly, especially if you run into issues paying off business debt. 

The degree to which your business credit affects your personal credit depends on several factors. One of the biggest factors is the structure of your business. A sole proprietorship, for example, is tied much more closely to your personal credit since it’s not its own legal entity. Other business structures, such as partnerships or limited liability companies, have more distance from your personal credit. 

If you provide a personal guarantee for a small business loan, your personal credit is very likely to be affected by any repayment or default issues. Personal guarantees — whereby you offer repayment from your own finances — supply assurance to a lender and thereby can help you get business financing. These guarantees are often required for new businesses and startups that need to borrow but may not have an extensive credit history.

How does a business credit card affect personal credit?

A small business credit card is a common method for paying business expenses, and can affect your personal credit in several ways.

  • Hard credit inquiry: Applying for a business credit card initiates a hard credit check on your personal credit report.
  • Credit utilization: The balance you carry on your business credit card versus its credit limit, also known as your credit utilization ratio, can affect your personal credit. 
  • Payment history: Credit card companies may report missed business payments to credit reporting agencies, which also show up against your personal credit report.

How does a business loan affect personal credit?

Business loans obtained with a personal guarantee require repayment either by the business or from your own personal finances. Failure to pay, or making late payments, can negatively affect your credit score. In many cases, getting a business loan can require a personal guarantee. This makes it essential that you pay back your loan on time to keep your personal credit in good standing.

How do other types of business credit affect personal credit?

That depends on what financing you’re talking about. Other forms of small business lending, such as a business line of credit, can affect your personal credit. Running into financial problems with a line of credit or other loans, such as a Small Business Administration loan or a short-term loan, can affect your credit. 

Does personal credit affect business credit?

Personal credit generally does not affect business credit as often as business affects personal, but consider these exceptions. Bad personal credit can make getting the business financing you need more difficult to do, but it’s uncommon for your personal credit details to otherwise affect your ongoing business credit utilization. Generally speaking, strong personal credit does tend to make obtaining business financing easier to do, however.

Tips for separating personal and business finances

You can separate personal and business finances in several ways. The less you use your personal credit to finance business expenses, the more distance it places between your business and personal credit.  Here are steps that can make it easier for you to create distance between your company's credit and your own. 

  • Establish your business as a separate legal entity: Registering your business as its own legal entity — be it as an LLC or a corporation — creates space between your own personal financial liability and that of your business.
  • Open a business bank account: A business bank account is essential for business owners who want to keep personal and business finances separate. This can also help you distinguish between business and personal credit use.
  • Get a business credit card: Business credit cards make keeping your personal and company credit use separate from each other easier to do. Plus, when you open a business credit card account, you can work toward establishing business credit independent from your own.

The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the tax and legal consequences of any strategies mentioned in this document. This information is governed by our Terms and Conditions of Use.