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How is Business Credit Different From Personal Credit?

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Good question. For most people, business credit is a mystery. Credit profiles are created by 3 business credit bureaus about every business using the business name, address and federal tax identification number (FIN) or the employer identification number (EIN) that you get from the IRS.

Other creditors rely on your business credit profile to determine if they want to grant you credit and how much credit they will give.

The Big 3 among the major business credit bureaus are:

1.     Dun & Bradstreet

2.     Experian Business

3.     Equifax Business

The information provided to the bureaus is completely voluntary. No business is required to send it in so the bureaus may never receive all or even any information about your business credit transactions.  You could go for years racking up business credit without any of it being reported to the bureaus â€" unless you know how the system works!

Business credit scores range from 0 to 100 with 75 or more considered an excellent rating. Personal credit scores, on the other hand, range from 300 to 850 with a score of 680 or higher considered excellent. But in reality, most creditors want to see a 720 score!

Your score is based on more than just whether you pay your bills on time. It can also be affected by the amount of available credit, the length of time you have had a credit profile, the number of inquiries made on your credit profile and more.

And the big mistake I see business owners make is that they use their personal information to apply for credit, leases and loans they are going to use in their business. This drives down their personal credit score!

Let me explain. The average consumer gets just one inquiry per year and has 11 credit obligations (7 credit cards and 4 installment loans). Business owners are not your average consumer.  They carry both business and personal credit. This usually doubles the number of inquiries, which reduces their score. They also carry higher balances, which reduces their available credit and their score even more.  Meanwhile, they never build their business score that could help them access much needed business credit in the future.

The first place to begin is with your personal credit. Many lenders look not only at the business ability to repay a business loan, they will look at the individual business owner’s credit profile applying for the loan.

In fact, a recent CNN report showed that 95% of all credit reports have errors and at least one-third of those errors are detrimental enough to be denied additional credit. I see it all the time.  Most credit profiles are inaccurate. And many consumers and business owners are denied credit through no fault of their own.

Rest assured, with a little hard work and understanding what steps you need to take, you can separate your business credit get access to funds without using your personal credit and guarantees.


This Business article was written by Mark Kane on 2/4/2010

Mark received his Masters from the University of Chicago, undergraduate from UMass, and has 20 years experience in personal finance He has been an entrepreneur for the past 11 years, and is an expert in personal and business credit.

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