What’s the Difference Between Personal and Business Credit?

Starting a business is a big leap that can be quite rewarding. However, you will need to do some legwork to get the whole process rolling. Once you have a name and your EIN, applying for funding is the next hurdle.

Social Security Vs. EIN

Your personal credit score is tied to your social security number. Your business credit score is tied to your EIN or Employee Identification Number. Both negative and positive credit information will follow these numbers, so checking your credit history on both of these numbers is critical.

If you are a sole proprietor or just starting out, get your EIN as early in the process as possible. This number needs to be tied to your

• business loan application
• business credit card
• business checking account

This is not to say that you won’t need to hand over your social security number early in your loan application process. If your business is very new, the lack of credit history could limit your loan options or increase the interest you have to pay.

A helpful tip on the EIN application: Get up early. The web application slows down a great deal as the sun rises and the system gets busier. Your personal credit is connected to you by your Social Security number.

Your Credit Score

If you use your personal credit to start your business and are in the process of moving that debt over, keep an eye on both your business and your personal credit score. If there’s a discrepancy in your personal credit report, the reporting agency has to review your challenge.

If your business credit score is lower because of a reporting error or fraud, fixing it will be more of a challenge. Should a discrepancy show up, your options for getting it off your business report will be much more difficult. If you have a discrepancy you can’t clear, you may need to apply for SBA bad credit loans until you can get the errors off your report. Reporting agencies have to work with you on your personal credit report. They don’t have to respond to challenges to your business credit.

Additional Options for Sole Proprietors

Early in the process of building your business, carefully review all the factors that will need funding. Do you need funds for inventory, equipment, or a facility? Experts with Lantern by SoFi recommend starting small, such as with an SBA microloan to fund the basics while you get your business rolling.

Carefully review special funding options related to your situation and location. If your business is physically located in an underserved area, your state and city may offer additional funding. If your business is partially owned by a person of color or a woman, the SBA may have additional options to consider. Finally, don’t forget to check out your grant options.

No loan process is especially fast. Once you have a solid business credit rating, you may want to have a business line of credit set up and ready to use when you need to act quickly.