Having a strong personal credit is essential for any person seeking to establish financial stability. But what about business credit? Knowing the differences between personal and business credit can make all the difference when it comes to setting up your business’s financial future.
What Is Personal Credit?
Personal credit is an individual’s track record of their debts, payments and other financial history. It is tracked by the three major credit reporting agencies: Experian, Equifax, and TransUnion. This information is then used to make decisions about loans, mortgages and other financial products you may seek out.
What Is Business Credit?
Business credit is similar to personal credit except that it applies only to companies rather than individuals. It also uses different metrics for evaluating a company’s financial standing. Where personal credit focuses primarily on debt repayment history, business credit includes factors such as payment terms with creditors, customer payment history and more. These factors are collected by different credit bureaus such as Dun & Bradstreet and are used by other businesses or lenders when considering whether to lend money or offer services to a particular company.
Why Does It Matter?
Knowing the difference between personal and business credit can help you better manage your company’s finances. Establishing a good business credit rating will help you secure lines of capital or loans in case of an emergency, while monitoring your personal credit score will ensure that you remain in good standing with lenders if you are ever in need of financing for yourself or for your business activities. Furthermore, having a positive business profile can improve relations with vendors or suppliers who may be willing to extend better terms if they know your company has a good standing in terms of its payment practices.