Updated: Jan 31
Business Credit is credit obtained in a Business Name. With business credit the Business builds its own credit profile and credit score. With an established credit profile and score, the business will then qualify for credit. This credit is in the business name and based on the business’s ability to pay, not the business owners. Since the business qualifies for the credit, in some cases there is no personal guarantee required from the business owner.
As amazing as business credit is, Entrepreneur estimates that 90% of business owners know nothing about it. We created this guide to ensure that as a Credit Repair specialist you know six of the most important aspects of business credit, and what it can do for you and your company.
This knowledge is essential. You’ll encounter many customers who will want you to teach them more about business credit. And, you can create a very lucrative income stream knowing how to properly advise your clients the through business credit building process. Now, let’s jump in so you can learn business credit secrets that every credit repair company should know.
6. Business Credit Has No Affiliation with Personal Credit
Business credit is credit in a business name, linked to the business’s EIN number. This is credit which a business owner can get which is not linked to their SSN.
When built right, you don’t supply your SSN on the application, meaning there is no personal guarantee to get this kind of EIN credit.
When you apply for something like an auto loan, the lending institution pulls your personal credit using your name, address, and social security number.
The lender sends this information to the consumer credit reporting agencies. Then they supply the lender a credit report with all information they have relating to someone with a similar name, address, and SSN.
With this type of credit an inquiry then goes on your consumer credit report, and your report is used to make the lending decision. Plus, the credit you get will then be reported to the consumer reporting agencies.
When you apply for something like a business loan, the lending institution pulls your business credit using your name, address, and EIN number.
This information goes to the business credit reporting agencies. Then they supply the lender a credit report with all information they have relating to a business with a similar name, address, and EIN.
With this type of credit an inquiry is then put on your business credit report, and your business report is used to make the lending decision. Plus, the credit you get will then be reported to the business reporting agencies.
It’s important to note that when applying for financing and credit using your business credit, you should NOT supply your social security number on the application, even though the form will request it.
When you do this, they cannot pull your personal credit because the lender can’t do so without your SSN.
This forces them to only pull your EIN credit as you supplied your EIN not your SSN.
It means you will get approval ONLY on the merits of your BUSINESS credit report.
Your personal report isn’t even reviewed.
This means there is no personal guarantee from the business owner to get approval. This also means that anyone who has bad, even horrible personal credit can still get approval for business credit.
Business credit reports to the business credit reporting agencies, not the consumer reporting agencies.
So, as business credit is used, it has no adverse impact on the owner’s consumer credit because it’s not reported to consumer agencies.
This means using the account, even over 30%, won’t have any adverse impact on personal credit scores.
And there are no inquiries on the personal credit when you apply for business credit if you don’t supply your SSN.
30% of your total consumer credit score comes from utilization. So, if you use your personal credit to get credit cards for your business, if you use those cards you will lower your scores. Using more than 30% of your limit WILL result in a score decrease.
So, if your limit is $1,000, having a balance above $300 lowers your scores. This means damage to 40% of your total score just by applying and using the credit you get with your consumer scores. True business credit affects 0% of your score.
10% of your total consumer credit score comes from inquiries. So, if you are using your personal credit to apply for business loans and credit, your scores will go down as a result of those inquiries.
Plus, those inquiries can remain on your credit for an extended period of time affecting your ability to borrow more money.
And some unsecured business lending sources won’t even lend you money if you have two inquiries or more on your personal credit reports within six months.
But with business credit, the credit doesn’t report to the consumer agencies, so neither inquiries nor utilization have any effect on your consumer credit scores.
This is one more reason every highly successful business has business credit.
5. Business Credit Scores Are VERY Different than Consumer Credit Scores
Business credit scores are based only on if the business pays its bills on time. As a result, a business owner can get credit much faster using their business credit profile versus their personal credit profile.
Personal Credit Scores come from five factors:
Payment History 35% z Utilization 30%
Length of Credit History 15%
Accumulation of New Credit 10%
Credit Mix 10%
Business credit scores mainly come from payment history alone. Consider that the most popular score in the business world is the PAYDEX score from Dun & Bradstreet. An 80 means that payment is prompt.
Consumer credit scores are made up of 5 factors. It can take years of well-disciplined borrowing to get excellent scores. Business credit scores are mostly based on payment history. So, as long as you pay bills as agreed, you will have an excellent score.
With Experian and Equifax, you can have just one account reporting and you will have a business credit score. Most vendors have your account reported to the business reporting agencies in 30 – 90 days.
This means you can build a business credit profile and get an excellent credit score in little time.