If you spend time online researching credit for small business owners, you’ll no doubt come across social media posts or videos promising that you can establish business credit and easily unlock hundreds of thousands of dollars in financing, regardless of your personal credit scores. 

But try to implement that advice, and you’ll probably discover that you can’t afford to ignore personal credit altogether. 

Yes, there are some types of business financing that don’t require good personal credit scores or personal guarantees, and at the same time, some of the most sought after small business loans, like bank loans and SBA loans, do. 

Whether you’re just starting out or have been in business for a couple of years, understanding the relationship between personal and business credit is essential so you don’t waste time or money.

Here, we’ll explain what you need to know as a business owner about personal credit and business credit. 

Personal Credit vs. Business Credit Basics

Personal credit reports (also called “consumer credit reports”) are compiled by three major bureaus: Experian^®, Equifax^®, and TransUnion^®. 

These credit bureaus collect and maintain consumer credit data, which is then used to create personal credit reports, and to calculate credit scores. Most consumer credit scores use formulas created by FICO^® and VantageScore^®.

Each credit bureau may have slightly different information, but they generally track the same types of data. And that information goes into the five main credit score factors:

• Payment history on credit cards and loans
• Debt and credit limits
• Length of credit history
• Types of credit accounts
• New credit applications/inquiries

With business credit (also called “commercial credit”), there are also three major credit reporting agencies: 

• Dun & Bradstreet (D&B)
• Experian Business
• Equifax Business

While you’ll notice Experian and Equifax appear in both lists, their business credit bureaus and consumer credit bureaus are independent of one another. They maintain separate databases, scoring models, and the credit scores they sell often have different scales for personal versus business credit.

Business credit reports and business credit scores are used by lenders and suppliers to evaluate creditworthiness and credit risk, insurance companies to gauge risk, and by other businesses when deciding whether to work with a business. 

Why Does Personal Credit Matter as a Business Owner?

When you apply for a small business loan, business credit card, or most types of small business financing, it’s likely there will be a personal credit check. Often the initial credit check will be what’s known as a “soft credit check” that will not impact your credit scores. 

If you decide to apply for the financing you’re offered, there may be a “hard” personal credit check, which can lower your personal score with the bureau that supplied the report. The impact of these credit inquiries is often relatively small, and short-lived, but you should definitely be aware of it. Ask questions if this is a concern for you. 

Why do lenders check personal credit?

1. Many small businesses have a limited business credit history. There can be many reasons for this: the business is new, it doesn’t use much credit, or the accounts it does have don’t appear on the business’s credit profile.
2. Small business financing is risky. Many lenders and small business credit card issuers believe that an entrepreneur’s personal credit can be a good indication of whether they are likely to also repay a small business debt. 
3. Personal guarantees are often required. Many major lenders and credit card issuers require owners to personally guarantee the loan, because the business lacks the track record to stand on its own. Even with a solid business plan, lenders want to see that you personally manage credit responsibly.

That means your personal credit may play a role in:

• Whether you qualify for startup financing
• Your interest rates on certain business loans
• Credit limits on business credit cards
• Equipment lease approvals

Myth vs. Reality: You Can Use Business Credit to Fund Your Life

A myth that’s been awhile but gained traction during the pandemic is the idea that—if you’re in the know—you can get and use business credit for all your business financing needs, regardless of personal credit.

The reality is more nuanced. 

Yes, as you grow your business you can, and should, build good business credit and move away from relying on your personal finances and credit. But that can take time, and newer or smaller businesses in particular often will need to use a combination of both. 

If you operate as a sole proprietor, understand there is no legal distinction between you and your business. That means you’ll never truly get away from using your personal credit history until you form a business entity like an LLC or corporation.

Business credit is specifically for business purposes. Those business credit cards you’ve been approved for? They’re meant for legitimate business expenses like inventory, equipment, or office supplies. 

Using them for personal purchases isn’t just against the card agreement—it can create other problems:

• Tax headaches: Mixing personal and business expenses makes bookkeeping harder and may be a problem if you are audited by the IRS.
• Legal vulnerability: If you have formed a corporation or LLC, using business credit for personal expenses (or vice versa) may be used to penetrate the legal separation between you and your business. This could put your personal assets at risk if your business faces legal issues.
• Credit damage: Maxing out a personal credit card for business use may affect your personal credit utilization rate and result in lower credit scores. Similarly, running personal expenses through a business bank account may make it more difficult to qualify for certain small business loans where bank statements are used to validate cash flow. 

Think of it this way: When a credit card company or lender extends business credit, they’re trusting you to use it for growing your business. They look at factors like:

• Your business’s revenue
• Industry-typical expenses
• Business cash flow
• Vendor payment patterns

None of these factors align with personal spending. 

Instead of trying to game the system, focus on building both types of credit the right way:

• Use business credit for business growth
• Maintain personal credit for personal needs
• Keep clear boundaries between business and personal expenses
• Document everything—every business purchase should have a clear business purpose

Remember, legitimate business credit isn’t a loophole for personal spending—it’s a tool for growing your business. The most successful business owners I’ve advised over the years understand this distinction and use each type of credit for its intended purpose.

How to Build Personal Credit

If your personal credit scores aren’t strong, there are usually three main reasons:

1. Lack of credit history

This is referred to as a “thin file”, where your credit profile simply doesn’t list enough information about accounts you’ve paid recently. Credit scoring models need information about past payment history to predict the likelihood of paying back a new loan or credit card. 

2. Bad credit

Another scenario is what’s known as “bad credit”, usually resulting from negative information on credit reports such as late payments, charge-offs, collection accounts or even bankruptcy. Since payment history is usually the top factor in credit scoring models, this type of information can hurt your credit scores. 

3. High debt

Most credit scoring models don’t heavily analyze how much debt you have in total. Instead, they analyze a factor called “credit utilization” which compares your balances to your available credit. High balances relative to your credit limits may lower your credit scores. 

Each of these scenarios requires a somewhat different approach, but the overall strategy will be to:

1. Maintain a variety of active accounts that report to credit bureaus.
2. Make on-time payments on all accounts that appear on your credit reports to ensure a positive payment history.
3. Pay down revolving lines of credit and credit cards with high balances relative to the credit limits. 

To expand on this, here are a few fundamental strategies that most experts recommend:

• Try to keep your credit utilization ratio under 20-25% on credit cards
• Make at least the minimum payment on time—set up autopay if needed
• Aim for a mix of different types of credit including installment and revolving accounts. (Installment accounts include auto loans, mortgages and personal loans. Revolving accounts refer to credit cards and other lines of credit.)
• Don’t apply for a lot of new credit cards or loans in a short period of time. 
• Monitor your credit reports regularly to see what’s affecting your credit scores, and to spot potential errors.

If you’re starting with limited credit history, you may want to begin with a secured credit card or become an authorized user on an established account with on-time payments and low debt. 

Realities and Trade-offs of Building Personal Credit When You Need to Use it for Business

One of the biggest challenges new business owners face is balancing personal credit building with business needs.

If you have good personal credit, you can likely qualify for a business credit card, even if your business is brand new. Most small business credit card issuers consider the owner’s personal credit scores and household income (not just business income) when reviewing the application. 

But let’s say you don’t have good personal credit, and you decide to use one of your personal credit cards to fund business expenses. You’ll want to be careful about a few things in this scenario:

Credit utilization becomes trickier. Business expenses can quickly push you over the 20-25% utilization ratio that’s often recommended. You may need to request credit limit increases before you need them, and consider using multiple cards to spread out expenses. (Try to avoid mixing business and personal spending on the same card whenever possible.)

Payment timing requires extra attention. Business income can be irregular, especially at first. Build a cash buffer to ensure you can make the minimum payment on all your cards even if business income doesn’t come in as fast as you hoped.

Be extra diligent about separating expenses. Keep receipts and records of which charges are business-related, even when using personal cards. This separation is crucial for tax purposes and future financing applications.

As soon as possible, get a business credit card and/or a business line of credit. Not only will this help to separate your finances, these accounts can also often help build your business credit profile when paid on time. 

Key Takeaways

While your goal might be to eventually rely primarily on business credit, your personal credit will likely be crucial during your first few years in business, or until your business starts bringing in a significant amount of money. 

You can build both personal and business credit simultaneously, but recognize that your personal credit may play a role initially while you do that. Keep your personal credit strong by monitoring your credit, making payments on time, and keeping clear records of business uses of personal credit.

Good personal credit isn’t just about access to financing—it’s about creating options for your business. The stronger your personal and business credit, the more choices you’ll have as your business grows.