Personal vs business credit score: what’s the difference?

31st JULY 2024 | 3 MIN

Personal credit and business credit scores are two different things…they’re similar, and one can affect the other, but they are ultimately different. Understanding the distinctions between them is crucial for managing your finances effectively and ensuring the growth of your business.

Let's dive into the key differences between personal and business credit scores, and why both matter for your small business.

What is a personal credit score?

A personal credit score is a numerical representation of your creditworthiness as an individual. It ranges from 0 to 1000, depending on the credit reference agency. In the UK, there are three major credit reference agencies including Experian, Equifax, and TransUnion.

Each CRA uses a unique rating scale and may receive different data points. As a result, your credit score rating differs between agencies.

But generally, your personal credit score will be based on factors such as:

Payment history: consistency in paying your bills on time

Credit utilisation: the percentage of your available credit that you're using

Credit history length: the age of your oldest credit account and the average age of all your accounts

Types of credit: the mix of credit accounts you have, such as credit cards, mortgages, and loans

Recent credit inquiries: the number of recent applications for new credit

A high personal credit score can make it easier to secure loans, mortgages, and other forms of credit at favourable interest rates.

What is a business credit score?

A business credit score, on the other hand, evaluates the creditworthiness of your company. It ranges from 0 to 100, with a higher score indicating a lower risk to lenders and suppliers.

Again, the data points may differ, but will include factors such as:

Payment history: how promptly your business pays its suppliers and creditors

Credit utilisation: the extent to which your business utilises its available credit

Company size and age: larger and more established companies typically have higher credit scores

Financial health: your company's financial statements, including profit and loss accounts, and balance sheets

Public records: any negative public records such as County Court Judgements, bankruptcies or insolvencies

Industry risk: the inherent risk associated with the industry in which your business operates

A strong business credit score can open doors to better financing options, favourable terms with suppliers, and lower insurance premiums.

Key differences between personal and business credit scores

Let’s break it down and uncover what sets these two credit scores apart.

1. Scope and purpose:

Personal credit score: reflects your individual creditworthiness and is used by lenders when you apply for personal credit products such as credit cards, personal loans, and mortgages

Business credit score: reflects your company’s creditworthiness and is used by lenders, suppliers, and insurers when your business applies for credit, negotiates terms with suppliers, or seeks insurance

2. Scoring range:

Personal credit score: typically ranges from 0 to 1000

Business credit score: typically ranges from 0 to 100

3. Information sources:

Personal credit score: your personal credit history, including credit cards, loans, and personal bill payments

Business credit Score: your company’s financial history, payment behaviours, and public records

4. Impact:

Personal credit score: directly affects your ability to obtain personal loans, credit cards, and mortgages

Business credit score: influences your business’s ability to secure financing, establish trade credit, and negotiate better terms with suppliers

5. Confidentiality:

Personal credit score: considered private and is only accessible to you, your creditors, and lenders you authorise

Business credit score: generally public information, accessible to anyone who wants to check your company’s creditworthiness

Why both scores matter for small business owners

Maintaining a good personal credit score is essential, especially if you’re just starting your business as you may need to provide a personal guarantee for business loans.

Also, if your business is new, lenders will use your personal credit score to evaluate your creditworthiness for a loan.

A strong business credit score on the other hand helps you establish your company’s independence from your personal finances and can lead to better credit terms, higher credit limits, faster approval, and lower interest rates for your business.

Stay tuned for next month’s blog, where we’ll cover ways to increase your business credit score.