Updated: Mar 12
How can I protect both my business and personal credit?
The most important tip for protecting both your business and your personal credit is to keep them separate. That requires establishing credit in the business name and not using your personal information when applying for a business credit account. While your business credit report and personal credit report are separate, small business owners often use their personal credit to apply for and secure credit accounts used for their business.
Although it may seem necessary when starting out, using your personal name and credit when applying for a business account can be risky. When you use your personal credit to apply for an account, you are using your personal credit history to secure the business credit. That can make you personally responsible for the debt. As a result, that account and its payment history may appear on your personal credit history as well as your business credit history.
If your business encounters financial difficulty and you are unable to manage those debts, your personal credit can be negatively impacted. Opening accounts in your business name only can help you avoid this.
How can I establish credit in my business name?
If you are a business owner trying to establish your business credit report, the first step is to legally register your business. For small businesses, one common option is to form an LLC (limited liability company) to ensure your company is seen as a separate business entity. Once you do that, you can begin to apply for business accounts in your company's name. If your business is a sole proprietorship, you will need an employer identification number (EIN) to establish business credit.
Once you have opened accounts in your business name, those accounts will be reported to your business credit file. Making all your payments on time will help you build a strong business credit history so that you can easily qualify for credit with favorable terms going forward.
Protecting your business and personal credit
Your payment history and your credit utilization rate are the most important factors in both your personal and your business credit history, so the key to protecting your credit rating in both instances is to make sure you make all of your payments on time and keep your revolving account balances as low as possible.
By managing all of your accounts responsibly and separating your personal credit from your business credit where possible, you can help protect both and set yourself up for financial success.