A good business credit score opens your business up to more opportunities—and not just in terms of funding and cash flow.
Your business’s credit score can influence a supplier's decision to work with you and the terms they’ll offer. A wholesale distributor, for example, might be more lenient on their repayment terms if you have a history of paying off credit on time. You could also secure more favorable interest rates with lenders if you’re backed by a strong business credit file.
If you don’t currently have a great business credit history, it can be tempting to secure funding in your own name using a personal credit account. This guide shares the potential risks of doing so, alongside the key differences between personal vs. business credit.
What’s the difference between business and personal credit?
Personal and business credit works in a similar way, but the main difference is the entity that is reliable. You’re personally responsible for any individual accounts opened in your name, whereas the company is accountable for debts acquired in the business’ name. You protect your personal assets by securing business credit instead of personal credit.
Businesses are also more likely to make expensive high-volume purchases—think machinery, rent, inventory, product development, and marketing costs—and for this reason, they tend to have higher credit limits.
Personal credit scores vs. business credit scores
Purpose
The biggest difference between personal and business credit is how the funds are typically spent. A business might use funding to pay for business expenses like inventory, machinery, travel, office supplies, or legal fees.
Individuals can use a credit card in their own name to pay for the same things, but you’ll be personally liable for any debt. More common uses of personal credit include paying bills or purchasing items like furniture, cars, or clothing.
Credit history
Your personal credit history considers all of your finances. The report will include personal information (like your full name, home address, and social security number) plus any loans or credit accounts, such as a mortgage, car loan, bank overdraft, or personal credit card.
A business’ credit history, however, only covers the financial background of the business. It’ll include the industry classification, credit risk score, and history of lending in the business’ name. Things like equipment financing agreements, a business credit card, and lines of credit will show in your business credit report.
Hard credit checks show on both types of credit reports. Too many of these can signal that you’re exploring too many lending options and have a negative impact on your likelihood of securing credit.
Credit scoring model
Credit bureaus score personal credit scores on a scale of 300 to 850 because there are more factors that influence an individual’s score. Businesses, however, have theirs measured on a scale of 0 to 100. Anything above 75 is considered a good business credit score.
Credit reporting agencies
Equifax, Experian, and TransUnion are the three major credit bureaus that lenders use for both personal and business lending. Dun & Bradstreet, however, focuses on business credit histories.
Liability and personal guarantees
Consumers tend to have more protection when they’re buying things using personal credit cards. Although some lenders might extend the Credit Card Act, which protects people who use personal credit, it generally doesn’t apply to business credit cards.
Much like personal loans, some small business loans also require a guarantor. This is a person who will step in and repay the debt if you (or the business) become unable to.
Impact of debt
Business credit is attached to the company. If you're unable to pay for a loan, you can close down the business and write it off, provided the loan doesn’t have a guarantor. Only your business’s assets—such as your retail stores, inventory, and assets—can be reclaimed.
Individuals, however, have less protection against unpayable debts. You’re personally liable for any repayments; if you can’t make them, the debt can’t be written off. Personal assets such as your home, car, and valuable possessions may be at stake.
Access to credit information
It’s free to check your personal credit score through reporting agencies like Equifax or Experian. Businesses, on the other hand, must pay a fee to access theirs, which can range between $40 and $50 per report.
Private information is also more protected in a personal credit report. Anyone who pays the access fee can see your business’ credit score—they don’t have to be a director or an employee of the company.
Where personal and business credit come together
Despite the differences between personal credit and business credit, there are similarities that both options share. The first is that any loan requires a credit check. Lenders will want to make sure that you can repay the money you’re lending, so they may run a credit check on you or the business before agreeing to lend you.
Most credit card companies also offer rewards for business spending. Whether it’s a percentage of your spend back in points or discounts on partner brands, these offers can compound in the long term—even if you’re collecting them through a personal credit card.
There’s a chance that you might be responsible for any debt accumulated. Check whether the funding requires a guarantor before agreeing to take on debt—even if the loan itself is in your business’ name.
How to build business credit for startups
Building business credit is a long-term play, but there are some quick wins that will help raise your business credit score as a startup:
- Pay bills on time: Just one late payment can show on your business credit file for up to six years. Pay your bills on time, every time—or earlier if you can.
- Keep your credit utilization ratio low: This shows lenders that you’re not overspending and using all of the credit you have available.
- Avoid closing old accounts in good standing: Business accounts with no usage help keep your credit utilization low.
- Increase business credit limits when possible: But don’t use the extra allowance. Spending $500 on your credit card when you have a $2,500 allowance will result in a lower credit utilization rate than one with a $1,000 limit.
- Maintain a mix of business credit types: Reporting agencies consider your credit mix in their credit score calculations. Try blending options like revolving lines of credit, monthly installments, and credit card repayments.
- Monitor your business credit reports regularly: If there’s something you don’t recognize or is incorrect on your business’ credit file, contact a credit bureau to investigate.
Build your business credit and secure funding
Personal credit files aren’t the best lever to rely on when you’re looking to secure credit for your business. By building a great credit history and score in your business name, you’ll open the company up to more opportunities—without being personally liable for any debts (provided the business loan doesn’t require a guarantor).
If you’re looking to secure funding for your small business, Shopify Capital can help. Access funding that you’ll repay as a percentage of daily sales, so you’ll never have to worry about missing a repayment.
Personal vs. business credit FAQ
Is there a difference between personal credit and business credit?
Businesses tend to have higher credit limits than individuals, and there’s also a fee to access your credit reports. However, you’re personally responsible for any debts acquired through personal credit. It’s free to access your personal credit reports.
Does my personal credit affect my LLC?
Not all lenders look at your personal score when evaluating whether they’ll loan money to your LLC, but it is an option—particularly if the business is newly registered or has a low credit score.
Is my business credit score different from my personal credit score?
Businesses have their own credit score that isn’t attached to your personal credit score. The way either score is graded also differs: businesses are graded on a scale of 0 to 100, whereas individual scores are graded between 300 and 850.
Can a personal credit card be used for business?
Some small business owners use a personal credit card to buy things for their business, but remember that you’ll be personally liable for any debts—even if the goods you’ve purchased are for business use.
* Shopify partners with Stripe Payments Company and Celtic Bank for Shopify Credit. Card products are issued by Celtic Bank pursuant to a license from Visa U.S.A. Inc. See Issuing Bank Terms and Shopify Credit Program Terms. "Cashback" refers to rewards earned as a percentage discount on eligible purchases. Earn 3% cashback as a statement credit on up to US$100,000 of annual eligible purchases in your monthly top spend category—either marketing, fulfillment, or wholesale, and 1% cashback thereafter. Earn 1% cashback on the other two spend categories. Restrictions apply. See Rewards Program Terms for details.
*Shopify Capital loans must be paid in full within 18 months, and two minimum payments apply within the first two 6 month periods.
Available in select countries. Offers to apply do not guarantee financing. All funding through Shopify Capital is issued by WebBank in the United States.
