Your Two Credit Identities

Personal and business credit scores and reports are separate, but lenders look at both in deciding on your business credit worthiness.

Your Two Credit Identities

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Four years ago, Joe started his own business. He incorporated it, ran it carefully, paid his bills on time and steadily made a modest but solid profit. The company’s credit profile and credit scores were top-ranked.

Then the day came when he needed a new piece of equipment. Lacking the resources to pay cash, he sought financing from his local bank. Joe got the loan – but at an interest rate notably higher than the bank’s best. Why?

Two years before starting his business, Joe had been laid off. In the process, he had run up his personal credit card, and then missed a couple of payments. Over the years he had slowly managed to bring the balance down, but that bad patch still stained his personal credit profile and dinged points off his credit score. And that hurt his ability to get credit for his business.


Personal and Business

Joe is not a real person, but his situation is very real indeed. When it comes to evaluating how sound your business really is, your company’s credit scores and profiles aren’t the only thing a lender or other creditor looks at. Your personal data will be part of the evaluation, too.

You’ve seen your personal credit report and credit score recently if you’ve applied for a mortgage on a new home or perhaps a car loan. But anyone who owns a business actually has two credit profiles and two sets of credit scores: one business and one personal. The two are separate, but if your business is going to grow, both must be healthy.

Your business credit report helps determine how much interest you’ll pay on a business loan; how much it will cost you to buy a surety bond to guarantee your work, and how much you pay in premiums for business insurance.

But your business credit profile isn’t all that matters, says Barry Paperno, consumer operations manager for FICO, also known as the Fair Isaac Corp. When you go to a bank to borrow money for the company, for instance, “chances are very good that they are going to look at your personal credit report and your score,” Paperno says.


Reports and Scores

Credit reports and credit scores aren’t the same thing. The report is “just the facts, ma’am,” as Sgt. Joe Friday might put it. It’s a listing, based on what lenders have voluntarily reported to the nation’s three credit bureaus, of all your past and present debts and related data.

It includes what you still owe, your payment record, and whether you have any stumbles like bankruptcy, loan defaults, court judgments or tax liens. “They’re not analytical in and of themselves,” Paperno explains.

But credit scores are: Whoever creates the score plugs all the data about your borrowing into a formula that yields a number. “It’s a risk analysis of the information on that report,” Paperno says. “It tells a prospective lender what kind of risk they would be taking by lending to you based on the information in your credit report.”

FICO is one of the leading credit-score companies, but there are others, each using its own proprietary formula. FICO happens to be the preferred scoring firm for 90 of the 100 biggest banks and for the top 25 car lenders and credit card companies. FICO scores are used in underwriting 75 percent of all home mortgages, Paperno says.


Obtaining Reports

Even though your personal and business financial data are separate – and the information in one isn’t included in the other – lenders, insurers and others are likely to look at both to decide how to charge you for their services. That’s why it’s a must to stay abreast of your personal and business credit profiles and scores and to keep in mind how they can affect each other.

Personal consumer credit reports are compiled by three firms: Experian, Equifax and TransUnion. Experian and Equifax also compile business credit reports, while another firm, Dun & Bradstreet, reports only on business.

The federal Fair Credit Reporting Act requires the three consumer firms to give you a free copy of your personal credit report once a year. You can get yours by going to, by calling 877/322-8228, or by downloading an Annual Credit Report Request Form from Business reports aren’t covered by the FCRA.

A caution: Don’t bother with similarly-named services such as, no matter how catchy their TV jingles are. The Better Business Bureau has a long list of complaints in which consumers allege they were unwittingly charged for credit monitoring services they didn’t know they were buying or they thought they had canceled during a “free trial period.”

Either your business or your personal report can have errors, so review the report carefully. If you see an error, report it in writing to the credit bureau. Also, dispute it in writing with the creditor providing the erroneous information.


Improving Your Profile

Once you have your personal and business reports and your scores and have made sure they’re accurate, you’ll want to do whatever you can to make them stronger. For that, the rules are pretty straightforward. “Whether it’s your business account or your personal account, paying on time is going to be the most important thing,” Paperno says.

Second, keep your personal and business debt level as low as possible. You shouldn’t be afraid of sensible business debt that can help your operation expand, but avoid needless debt so that when you really do need to borrow, you’ll do so at a better rate. Low debt and a record of on-time payment account for about 65 percent of your FICO score.

One other piece of advice: “Don’t apply for credit unnecessarily,” Paperno says. Too many credit applications – whether you end up getting credit or not – will ding your credit score. “Only apply for what you need,” Paperno says. “You won’t hurt yourself that way.”

Follow these simple steps, and when the time comes for you to get a loan or a bond, or negotiate a new insurance premium, you’re likely to get all the credit that you’re due.


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