For years, business owners have relied on the strength of their personal credit to dictate their ability to obtain funding for their businesses. Unfortunately, this dependence can be easily avoided if more business owners knew about the advantages that business credit provides and its actual existence. Here, you can review the key advantages of business credit compared to personal credit when it comes to your business and become your own expert.
Social Security Number vs. Federal Tax ID
Your social security number (SSN) is your personal unique nine-digit number issued to you so you can pay taxes and pay into the social security system. It’s also used by the credit reporting agencies in the creation of your personal credit files.
A Federal Tax ID Number (EIN) is the corporate equivalent to a social security number. It’s a nine-digit number assigned by the IRS to business entities operating in the U.S. in order to identify each company.
The major difference here is even though you are issued only one social security number as an individual, as a business owner you can obtain multiple Federal Tax ID numbers if you own multiple companies.
Single Personal Credit File vs. Unlimited Company Files
While you have only one consumer credit file linked to your SSN, you have the ability to create and establish multiple business credit files with the business credit bureaus. You can do this because each company you incorporate has its own individual identity separate from that of its owners. Each business can obtain its own unique Federal Tax ID number, allowing it to build its own unique credit file as well.
Limited Credit Capacity vs. Unlimited Credit Capacity
Did you know that business credit has ten (10) to one hundred (100) times greater credit capacity than personal credit?
When you use personal credit to apply for business financing, your mortgage, auto loan, credit cards, and even student loans affect your ability to qualify. But when you take advantage of business credit reports, you truly get to leverage the power of your business.
Your files include your company’s payment history and may include revenues, assets, and company financials depending on how much information you furnish to the business credit bureaus. In addition, your business files won’t show your personal debts or personal financial obligations.
And if you own several companies, each of the businesses will have its own credit capacity, giving you unlimited financing potential.
FICO Credit Score vs. Paydex
There are many different scoring models out there, but the most widely used on the consumer side is FICO.
The FICO scoring system has eighty-eight negative rating factors that can hurt your personal credit score and only six positive factors. And you only have control over five of them, which means you’re fighting an uphill battle on the consumer side.
However, one of the main business credit bureaus known as Dun and Bradstreet (D&B) issues its own business credit score known as Paydex. This score is primarily based on how your business pays its bills and it’s much easier to understand and maintain compared to FICO concerning business matters.
If you’re just starting to launch a business or run an existing one, now is the time to utilize one of the best kept secrets in the business world. Business credit has obvious advantages over using consumer credit to fund or grow your business and now you’re an expert.
Need to build your business credit as fast as possible? Connect with our business credit experts now to learn more
