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Why you should separate business and personal credit | Business Credit Answers

September 20, 2021 by Brodie Oldham

Why it is so important to separate business and personal credit

When we look at small business owners like you in the U.S., we know that you are less delinquent on your accounts. You revolve a little bit more of those balances as you go forward, as you’re trying to grow your business. And we know that you are more likely to pay your debt because it’s tied to your livelihood. And if something is tied to your livelihood, you’re more likely to honor it. Well, we want you to honor all your obligations on your consumer and commercial credit. And so to do that, it’s better to separate out those two forms of credit. Your two profiles, your business, and your consumer, meaning just your personal credit.

So when we look at this, think about it in this way. I have a small business, and with my small business, sometimes I need to buy equipment. But it as a small business owner. I may not have established my commercial credit. I don’t have anything on a commercial credit card. I don’t have an installment loan through my business. And I want to do it on my consumer credit card. So I go out and I buy this piece of equipment. I put it on my consumer credit card. What that does is add debt to my consumer credit.

A lot of times that utilization will be a little bit higher. The debt will be higher. It’s a piece of equipment. Generally, it’s pretty big. That means my score will go down a little bit.  You may come into a life event. So we’ve had a third kid and my wife says, hey, we need a little bit bigger house. So to do that, we go shopping for a house. But what I have is this piece of equipment on my personal credit, bringing my score down a little bit. That’s going to make the cost of my house a little bit higher. And I may not be able to afford the houses that I’d really like. So pulling that piece of equipment, going through a commercial credit facility, getting it on a commercial credit card or an installment loan through my business will bring that debt off of my personal credit and put it under my business, where it should be. That establishes my small business, allows that score on my small business to go up. It also takes a debt load off of my consumer credit, allows that to go up.

And so it makes me have a better opportunity to buy a house at a cheaper price, also allows me to build my small business credit. And in doing that, I can gain access to cheaper funds for my business going forward and grow.

You can check your Experian business credit score by purchasing a one-time copy of your credit report or by signing up for business credit monitoring, including unlimited access to scores. Read our post on checking your business credit score for more information.

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This blog is written and managed by the team at Experian Business Information Services. Here you will find articles on business advice and credit education in addition to the latest news and trends in small business.

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