When you apply for a loan, bid on a house, or apply for a credit card, a good personal credit score can be the deciding factor. This importance is magnified when funding a startup, because your personal credit score determines your business’s creditworthiness. Once your business is established, it’ll be important for you to maintain both a strong personal credit score and business credit score.
What’s considered ‘good’ credit?
The most standard personal credit score used by lenders is the FICO® Score. Your number is based on reports submitted to the companies Experian, Equifax, and TransUnion by your credit lenders. Many banks and other lenders allow you to track your credit score, or you can request a free credit report from each bureau every 12 months.
What are the FICO® Score ranges?
- 670-739: Good
- 740-799: Very good
- 800+: Excellent
Your business credit scores are determined by Equifax, Experian, and Dun & Bradstreet. You can check your business credit scores by requesting a business credit report, just like you do for your personal credit score. Each bureau will also provide additional scores for measuring the financial health and credibility of your business.
What’s the difference between personal credit and business credit?
A personal credit score measures the creditworthiness of the individual, while a business credit score measures the creditworthiness of the business. Creditworthiness is determined by whether the person or business handles debt responsibility. Personal and business credit scores are often used together when a business owner is building credit.
Building business credit is similar to building personal credit. To calculate business credit scores, business credit bureaus use your payment history, available credit, and certain judgments like tax liens or bankruptcy.
Benefits of having a good credit score
A good business credit score can help you secure business loans that are key to growing and scaling your company. Here are some examples of how that works:
1. Increase your chances to qualify
A higher personal FICO® Score boosts your eligibility for a business line of credit. A good business credit score boosts your chances further. In some cases, a good business score can compensate for a lower FICO® Score, giving you a better chance of being approved for loans, credit cards, or lines of credit.
2. Get approved for higher limits
A strong business credit score, along with business assets and credit history, can help you acquire more credit. Businesses typically have more assets and income than individuals do, which translates into more purchasing power and a greater ability to take on debt.
3. Qualify for lower interest rates
For both individuals and businesses, higher credit scores lead to lower interest rates on loans, which is important for companies that take on substantial debt. Lower monthly payments on debt means a business will have better cash flow and more money in the bank.
4. Enjoy more credit card options
A good business credit score expands your business credit card options, which means higher cashback rates, better rewards programs, and exclusive perks. You may also qualify for low- or zero-interest balance transfer cards to help you reduce existing credit card debt.
5. Save on rent and insurance
Lenders and credit card companies aren’t the only ones who look at business credit scores. Property owners use them to decide lease terms, vendors may check your business credit to set contract terms, and insurance companies will offer lower premiums to companies with strong credit.
Check out our complete guide to building and using business credit.
