stat_smpl_FSSum_20111114There is a good deal of information available about personal credit, how to maintain or improve it, and what you can do to prevent identity theft. However, there is not a lot of information readily available on business credit reporting and how it can affect your personal credit. There are a variety of business entities available and some specifically do not interfere or intersect with your personal numbers. However, sole proprietorship does. For that reason, this article looks exclusively at that entity.

What is a Sole Proprietorship?

A sole proprietorship is a business entity that is run by one person, and there is no legal distinction between the business and the personal assets. When you sign up for a sole proprietorship account, you will most likely use your own social security number as the Employer Identification Number, which means that any transactions you do as the business will also show up on your personal credit report. The credit bureaus will create a business credit report for the business name, and they are separate than that which you have for your personal credit report, but they do intersect.

What are the Differences between a Business and Personal Credit Report?

For sole proprietors, the differences between the business and personal credit reports are very minor. In a personal credit report, you can find the following:

  • Identifying Information
  • Account Information
  • Public Record Information
  • Inquiries
  • Dispute Instructions

Business credit reporting works much the same way; however, there are a couple of different pieces of information gathered. Business credit reports contain the following:

  • Identifying Information
  • Payment Information
  • Public Record Information
  • Inquiries
  • Company Background Information
  • Business Credit Score

Personal credit reports do not contain the credit score as part of the report. If consumers want their score, they will have to purchase it separately. However, business credit reports come with the business score. The scores themselves are different, as well. Although what makes up the score is roughly the same, the business is scored on a scale of 0-100, while the personal score will run between 350-850.

Will Lenders Look at Personal Credit When Applying for Business Loans?

Many small businesses have little to no business credit for lenders to evaluate, so as long as the business is a sole proprietorship, lenders will look at personal credit for reference purposes. It gets more complicated when the business is run independently, because in this case business and personal assets are completely separate. However, for a sole proprietor, personal credit can help establish business credit.
As a new business, you will build relationships through vendors such as wholesalers, suppliers, leasing companies, and even financial institutions. Once these relationships are established, you can use less of your personal credit, and more of your business credit. When starting a sole proprietorship, you may not have any business credit established. In that case, lenders will often look at your personal credit as a reference.
Over time, your business will establish the credit it needs to be looked at on its own merits, but until that happens, it is important to keep both your personal and your fledgling business credit in good order.  Monitoring your personal or business lines of credit is an important method of detecting errors or even fraud.  Learn more about this process here.