Difference Between Business Credit Score and Personal Credit Score

A credit score, or CIBIL score, is a three-digit number that indicates creditworthiness. Personal and business credit scores are often used to determine the ability to secure a loan. Let’s understand the difference between business and personal credit scores. Keep reading!

Personal Credit Score vs Business Credit Score

How to Build a Good Credit Score?

1. Pay Bills on Time: Consistently paying your loan EMIs on or before the due date is the most critical factor in building a good credit score. Late payments can have a significant negative impact on the credit score.

2. Keep a Lower Credit Utilisation Ratio: It is always advisable to use 30% of your available credit. Utilising your entire credit depicts that you are highly dependent on your credit for living. So, it is important to maintain a balance between the credit limit and credit utilisation.

3. Limit New Credit Applications: Applying for multiple new credit accounts within a short period can lower your credit score. If you want to build a good credit score, be selective about applying for new credit and avoid opening unnecessary accounts.

4. Diversify Your Credit Mix: Having a mix of different types of credit, such as credit cards, loans, etc. can positively impact your credit score. However, only take on new debt if you can manage them responsibly.

5. Regularly Check Your Credit Report: Monitor your credit report regularly to ensure that all information is accurate and up to date. Dispute any errors or inaccuracies promptly, as they can harm your credit score if left unaddressed.

6. Use Credit Responsibly: Demonstrating responsible credit usage over time is key to building a good credit score. Avoid maxing out credit cards, making only minimum payments, or defaulting on loans.

When Do Lenders Check Both Personal and Business Credit Scores?

Lenders may check both personal and business credit scores in various situations, depending on the type of financing being sought and the structure of the business. For sole proprietors and small businesses with a single owner, lenders may rely heavily on the owner's personal credit score when assessing creditworthiness. In contrast, larger corporations and established businesses may have separate business credit profiles that lenders evaluate alongside personal credit scores.

In cases where a business is seeking financing, such as a business loan or line of credit, lenders may consider both the business's creditworthiness and the personal credit history of the business owner. This dual assessment helps lenders gauge the overall risk associated with extending credit to the business entity. Similarly, when applying for certain types of business credit cards or vendor accounts, lenders may review both personal and business credit scores to make approval decisions.

To Conclude

A personal credit score shows your creditworthiness, and a business credit score indicates a company’s creditworthiness. Building and maintaining good credit scores, whether personal or business, is essential for securing favourable terms on loans. Though both personal and business credit scores sound similar, there are certain key points, such as calculation methods and score ranges, that differentiate them. Before approving your loan, lenders may look for your personal credit score or business credit score to check your creditworthiness.

(Disclaimer: Hans India is not responsible for the accuracy or implications of the above information)