Why is it important to establish a business credit report separate from personal credit?

As an entrepreneur, did you know you have a unique opportunity to build, maintain and acquire credit both individually and as a business owner? That's good news if you're trying to build and grow a small business because you won't have to rely solely on your personal credit to do that.

It is estimated that fewer then 10 percent of all entrepreneurs know about or truly understand how business credit is established and tracked, and how it affects their lives and businesses.

Let's take a look at how personal credit differs from business credit.

Personal vs. Business Credit

At the point an individual with a social security number accepts their first job or applies for their first credit card, a credit profile is started with the personal credit reporting agencies. This profile, otherwise known as a credit report, is added with every credit inquiry, credit application submitted, change of address and job change. The information is typically reported to the credit bureaus by those who are issuing credit. Eventually, the credit report becomes a statement of an individual's ability to pay back a debt.

The same is true for businesses. When a business issues another business credit, it's referred to as trade credit. Trade, or business, credit is the single largest source of lending in the world.

Information about trade credit transactions is gathered by the business credit bureaus, such as Experian, to create your business credit report using your business name, address and federal tax identification number (FIN), also known as an employer identification number (EIN), which you get from the IRS. The business credit bureaus, such as Experian, use this compiled data to generate a report about your company's business credit transactions. In many cases, those issuing credit to you will rely on your business credit report to determine if they want to grant you credit and how much credit they'll give.

The mistake many business owners make is using their personal information to apply for business credit, leases and loans. By doing so, they risk having a lower personal credit score.

At the same time, by using their personal credit history to get business credit, they're not able to build their business credit score, which could help them attain critical business credit in the future.

The key to establishing a business credit profile and score is to find companies that will establish credit for your business without using your personal credit information and then report the payment experiences to the business credit bureaus, like Experian. By reporting the information to the proper agencies, they'll help you establish your business credit profile.

Written by:
David Gass, President & Founder
Business Credit Services, Inc.