It is not unusual to see business credit come into the picture while operating a business. Starting from its inception, the requirement for funds remains constant for any business. For growth and expansion, finances are the major fuel, and keeping up with consistency is a challenge.

Many times, the business owner uses personal credit to fetch funding. There is nothing wrong with it. However, when you can implement which way, it depends a lot on the business type. 

Because of the involvement of these two terms for the same purpose, you might get confused. In some cases, both might act as the same factor. After all, credit history defines whether a person or company is capable of handling external funds.

Good credit scores are desirable and can convince the lender easily. When your business shows a perfect credit history, getting loans at favourable rates becomes most likely. You can further discuss with a business loan broker to understand how you can make sure you get a suitable loan price. 

Besides, perfect scores are an indication that the internal cash flow is steady. On the other hand, poor scores depict a completely different picture. It applies the same way in the case of personal and business credit.

For a deeper understanding of how they are different or similar, taking a tour of this blog is a must for you.

How are personal and business credit dissimilar or alike?

The very basic difference is that personal credit is relevant to establish your financial behaviour. If it is good, you can welcome better financial opportunities in your personal life. On the contrary, business credit is meant for your venture and to explore different funding possibilities.

As a business owner, you need to maintain the capital to support business expenses. If it becomes insufficient, the situation can trigger a financial problem. Remaining indifferent to it might prove to be very expensive for you.

Multiple pending payments will harm the business credit. You will have to let go of a lot of opportunities because of poor credit scores. However, it does not. There is zero hope for you.

You can still make it to getting guarantor business loans. Here, you will have to bring a person with perfect credit scores and stable earning conditions. Utilising their personal credit, you can seek approval for loans from the loan provider.

You can see how both personal and business credit can be useful for your business in different ways. Keep digging deeper to find the diverse ways they can be similar and different.

In what ways are personal and business credit different?

They should not be compared as both have a different definition. However, the common link could be that both may come in handy for your business in diverse situations. When you are a new business, many lenders would like to refer to personal credit.

This is because business credit takes some time to build. This factor influences the financial well-being of your venture a lot. Check the pointers that prove their disparity.

Pointers	Business credit	Personal credit
Factors taken into consideration	Payment history, span of credit history, debt volume, their management, type of industry you specialise, size and age of your company	Along with payment history, credit utilisation, types of credit utilised, request for new credit and span of credit history will add up.
Score range	They vary from 1 to 100. Here, the higher the number the lower is the borrowing risk.	They vary from 300 to 850. Here also, if your score is high, it reduces the borrowing risk.
Details on credit report	Public filing data, information of the company, registration details of your business, background on company formation etc.	Personal information, credit account details, inquiries (hard checks) and public record data.

No matter how good personal credit scores are. The scope for your business’s financial growth will depend on its credit scores. You cannot use your credit scores to define the financial capability of your business.

A venture that has been set up newly will start connecting with other companies. Such connections can influence business credit. Building a strong business credit profile is critical.

It helps in demonstrating the creditworthiness of the venture. Information about business credit scores is accessible to anyone. Thus, be careful while extending your relationship with other businesses.

Is it important to keep personal and business credit separate?

You do not have to separate them as they are already separated. However, as a newbie business owner, you might feel the urge to take advantage of personal credit to avail of funding facilities to meet business outgoings.

Now, if you are implementing this strategy for once, there is no problem. It should not turn into a habit, as it will ultimately harm your business. When your company is dependent on personal credit, business credit does not get an opportunity to be created.

Without it, you cannot take your company to heights. It will have a bad impact on the debt-to-income ratio of your business. You do not have to reveal the credit scores of your venture at the time of getting secured business loans.

You will be putting up business assets. Thus, the lender does not feel the need to analyse the business credit. Nevertheless, the financial requirements of the business will not always be the same.

For some specific funding solutions, establishing the credit history of your venture is very crucial. Therefore, for these occasions, you should be separating these two types of credit scores. Furthermore, you cannot simultaneously use personal credit for personal necessities and business requirements.

Taking out too much debt is not going to be beneficial for your credit scores. You need to be calculative when it comes to deciding which way would be perfect. When you keep them apart, personal credit is less likely to be affected by your business operations.

The bottom line

The forever debate between personal and business credit will continue. You should know when you can take advantage of which credit scores. However, it is a good idea not to mix them up as it can damage your personal and business funds.