A personal credit score is for individuals while a business credit score is for businesses. Let us look at the differences between a personal credit score and a business credit score.
Personal Credit Score vs Business Credit Score
A personal credit score belongs to an individual and assesses their ability to repay a loan. A business credit score is for a business and assesses a business’s ability to repay its debt. If the business is small, the lender might want to look at the owner’s individual credit score too.
Personal Credit Score
A personal credit score is given between 300 to 900. It is a three-digit number that lenders look at to assess the credibility of the applicant. A score of 750 and above is generally considered great by lenders. The higher the score is, the higher will be the benefits you will derive like a higher loan amount, lower interest rate, early loan disbursal, etc.
How to Build a good personal Credit Score
- Determining a personal credit score – A personal credit score is calculated by the credit bureaus after analyzing a lot of factors like the duration of credit history, pending debt, payment history, credit mix, etc.
- Payment of dues on time – Your credit score can be boosted by making sure you pay all your outstanding on time. This includes payment of credit card dues, EMIs, any loans, etc.
- Sufficient balance in accounts – Try and ensure that there is a sufficient balance in your accounts before the EMI payment date. This will ensure that EMIs are paid on time and you do not miss them. This will help in building the credit score.
- Credit utilization ratio – Try and maintain the credit utilization ratio under 30%. Paying your dues on time and not asking for too many new loans will ensure the credit utilization ratio is well within limits.
- New loan inquiries – Making too many new loan inquiries will bring your credit score down. Try and limit your queries so it doesn’t hurt your credit score.
- Credit mix – A good mix of secured and unsecured loans ensures there is a good mix of debt. The good mix of debt shows that the applicant is capable of handling all kinds of credit.
Business Credit Score
A business credit score falls between 300 to 900. It is a parameter often considered by lenders as a measure of a business’s creditworthiness. The score is given by credit bureaus after analyzing various parameters in the credit report. A higher credit score is a good measure of the business’s credibility. Lenders usually want a score of 750+ to approve the loan quickly.
How to Build a good business Credit Score
- Determining a business credit score – A business credit score is determined after considering a number of factors like years in business, lines of credit, credit history, payments history, etc.
- Size of business – Lenders like to check the personal credit score of owners along with the business credit score in the case of a small business. This is to make sure the owner has good credibility as well.
- Business experience – The longer you have been in business, the better your chances of building a good credit score. Paying your bills on time is a good way to ensure your build towards a good credit score.
- Company assets – Company assets help you get secured loans as well. A mix of secured and unsecured loans works well for your business credit score. Lenders are also assured of security when the business has company assets to pledge.
- Credit behavior – Paying your bills and EMIs on time helps you build a good credit score. Checking your business credit report regularly ensures that you are updated with your credit behavior and its impact on the credit report and credit score.
When do lenders check both personal and business credit scores?
Lenders check into the financial history and credit behavior at the time of screening your application for a loan. They look at the credit report and credit score to ascertain the creditworthiness of the individual or business. In the case of a business loan, lenders will also look at the owner’s personal credit score in case it is a small business.
The main difference between a personal credit score and a business credit score is that a personal credit score is for individuals and a business credit score is for businesses. It is advisable to pay dues on time, maintain a low credit utilization ratio, keep a good credit mix, and not apply for too many loans, in order to maintain a good personal and business credit score.
FAQ of Key Differences Between a Personal Credit Score and a Business Credit Score
1:What is a personal credit score?
A personal credit score is the credit score assigned to individuals by credit bureaus based on a number of factors like credit history and behavior, due payments, etc.
2:What is a business credit score?
A business credit score is a credit score given to businesses by credit bureaus.
3:How can I improve my personal and business credit score?
You can improve your personal and business credit score by paying your dues on time, maintaining a low credit utilization ratio, a good credit mix, limiting your loan inquiries, etc.
4:Do lenders ask for both personal and business credit scores?
In case of small businesses, lenders would want to look at both personal and business credit scores.