BUSINESS CREDIT vs PERSONAL CREDIT

Credit is one of those things that affects us all, whether you are an average citizen or a businessman. If that is your case and you own a small business, you also must manage your business credit and your credit. If you have a small business, and especially if you are the sole owner, surely the finances of your business are linked to your credit. And maybe you want to know how to increase your business credit.

It may seem easier to have everything in one account, but it is a mistake not to separate your business expenses from your personal expenses. It can confuse your finances, and it can affect your budget and your ability to accurately manage your gains and losses.

What is "credit"?

Before explaining the differences between business and personal credit, we must understand what credit is. Credit, in simple terms, is the money you borrow from a surety and with which you buy goods or services. Your guarantor or lender and you agree that you will return the money in a period, applying charges and interest. There are different types of credit:

Revolving credit: This is a line of credit that has been issued with a maximum credit limit. You can have charged up to that specific limit. You must make monthly payments until you pay the balance you have accumulated.

Installment credit: This is a one-time loan, which you agree to repay in fixed installments during a specified time limit.

Exchange credit: This is an agreement between a customer and a vendor or supplier. The customer can obtain goods from the seller and pay for them later. Normally when the goods are delivered to you.

Differences between personal credit and commercial credit

Now that we have seen the different types of credit and that we understand them better, let's focus on the difference between business credit and personal credit. There are indeed many similarities between the two. For example, the way you build your business credit, and your personal credit is essentially the same: you just have to make your payments on time. But there are key differences that separate the two types of credit:

Difference 1: The way they are built

Most of us try to build personal credit. You go to a bank or credit card provider and request to open an account or receive a credit card. During this process, they will ask for your Social Security number. Once you have provided the data and are approved, your account is opened within your personal credit, because it is linked to your personal information (Social Security number).

Difference 2: The way privacy and accessibility are handled

The last two main differences are privacy and accessibility. No one has permission to access your personal credit score or report, except you and those of your choosing. However, your score and your business credit report are open to the public. Anyone has access if they pay the applicable charges.

By law, once a year you have the right to request a copy of your personal credit report from one of the credit bureaus. You can also ask for your FICO score. But this is not the case with your business credit report: To gain access, you must pay a fee to the business credit bureaus.

Difference 3: Protection and Safety Features

When it comes to security and protection features, your personal credit card includes protection for individual consumers. But that extra level of security doesn't always apply to businesses. In other words, a personal credit card offers an additional level of protection that your business credit card does not.

Additionally, for individual consumers, the CARD Act requires your credit card issuer to give you at least 45 days' notice before changing rates, such as late fees or your interest rate. However, there are no limits on the interest rates that business card issuers can set, and there are terms on these cards that can change without notice.

Conclusion

In summary, the main difference between business credit and personal credit is that the second is any type of credit that is linked to your personal information, such as your social security number. Commercial credit, on the other hand, is any type of credit associated with your business through your tax identification number. This credit is what your sellers or lenders use to evaluate the ability of your business to request a loan and make payments on time.