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When starting your own business, funding can be a big hurdle—in more ways than one. And if you’re not careful, the lines between business credit and personal credit can get blurry.

As you start setting up your business accounts, make sure you understand your business financing options and how they may affect you personally. Here’s what you need to know about the relationship between your business books and your personal credit score.

Tip: Are you ready to apply for a small business loan?
See what rates you qualify for.

A Personal Guarantee: When Business Accounts Affect Personal Credit

Depending on what type of business you have and how you acquire credit, a business loan or credit card may affect your personal credit score. Specifically, if you personally guarantee a business account in any capacity, it can impact your personal credit.

Business Loans

In many cases, small business loans are guaranteed by an individual. That means you, as the sole proprietor or partner in the company, agreed to pay the debt. In such a case, the lender can seek to collect payments from you personally in the event your business can’t pay as agreed. This also positions you as a cosigner of sorts, which means the debt can be reported on your personal credit report.

>> Read more: 3 Small Business Loans & How to Pick One

Similarly, if you personally guaranteed a business line of credit, it can impact your credit history. Personal loans—including home equity loans—used to fund your businesses will affect your personal credit score as well.

Business Credit Cards

A business credit card is a great way to manage cash flow and increase your working capital. Whether or not information related to a business credit card account shows up on your personal credit report depends on how the account is set up. If you are an employee of a corporation and the company provides you with a business credit card to cover work expenses, it’s unlikely this card will be listed on your personal report. You’re simply an authorized business user for the card.

>> See our recommendations for best business credit cards.

However, as a small business owner with your own business credit card, you are considered more than an authorized user. You may be guaranteeing the account personally, which means it’s likely to show up on your report and impact your score. Before signing up for a business credit card, make sure you understand whether or not you are personally guaranteeing that account.

If you use a personal credit card for business expenses, those payments will also appear on your report and affect your score.

How to Keep Business Debt Off Personal Credit Reports

Now’s the time to think strategically about the best ways to keep your business credit score and personal credit history separate. Consider some of the options below.

Choose the Proper Business Structure

“As a sole proprietor, your business and personal credit will be one and the same,” says attorney Garrett Sutton, author of Own Your Own Corporation and founder of CorporateDirect.com. Choosing a company structure (such as an LLC, S Corp. or C Corp.) that separates business and personal finances may offer some benefits. Small business owners should talk to a business organization lawyer or CPA to find out what might work best for their situation.

Choose the Right Business Credit Card

You may be able to choose a business credit card that doesn’t routinely report activity to the consumer credit reporting agencies. However, you must make all payments on time to keep this so. Virtually all major small business cards will report if you default on the card.

Talk to Your Lender

Ask lenders whether they will check your personal credit reports for a business loan or payment plan. Those inquiries are hard pulls that affect your scores. Before committing to any financing offers, you should also ask about the lender’s policy for reporting loans. Review all contracts to determine whether or not they are requesting a personal guarantee. If you sign anything with your own name, rather than the name of your business, you may be held personally liable for the terms of that contract.

>> Read more: Can a Debt Collector Come After Me for a Business Debt?

Consider Alternatives

Before you tap your home equity line or personal credit cards to launch your venture, talk with a tax or financial adviser about alternatives. Loans against your 401(k) or other retirement plans, for example, don’t show up on consumer credit reports.

How Personal Debt Impacts Business Loans

Personal debt or a poor personal credit score could derail your prospects for a business loan depending on factors such as whether your business has its own score and what type of company organization you chose. Some lenders may only look at your business credit score or history, which is reported by three major business credit bureaus: Experian, Equifax, and Dun & Bradstreet. In other cases, such as with some working capital loans, the lender is more concerned with the historical fitness of your revenue streams and balance sheets than any credit score.

>> Learn more: The Ultimate Guide to Improving Your Business Credit Score

A loan you take out for business purposes could be based partly on your personal credit. If you are taking out a personal loan, such as a home equity line of credit, to help cover business expenses, your personal credit definitely matters. Even if you’re applying for an actual business loan, you may need to rely on your personal credit history if your company is new and doesn’t have its own history or successful revenue to trade on.

Get a Business Loan

If you’re ready to start or grow your business, check out your loan options.

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  • wesley

    I RECEIVED A CREDIT CARD IN THE MAIL FROM BANK OF AMERICA FOR MY BUSINESS THAT I NEVER APPLIED FOR. THE CARD JUST SHOWED UP IN THE MAIL ONE DAY. I USED THE CREDIT CARD FOR YEARS AND ALWAYS PAID IT ON TIME. IT NEVER REPORTED TO MY PERSONAL CREDIT REPORT. LAST YEAR I HAD TO SHUT THE BUSINESS DOWN FOR LACK OF WORK. I REMAINED PAYING THE BUSINESS CARD AS LONG AS I COULD BUT HAD TO STOP BECAUSE I JUST WASN’T MAKING ENOUGH TO COVER ALL MY PERSONAL EXPENSES. I HAVE EXCELLENT CREDIT AND ALWAYS PAY MY BILLS. BUT RECENTLY BANK OF AMERICA TOOK $600.00 OUT OF MY PERSONAL ACCOUNT TO PAY THE CREDITE CARD, I THEN CHECKED MY CREDITE REPORT AND DISCOVERED THEY BEGAN REPORTING THE BUSINESS CARD ON MY PERSONAL ACCOUNT. IS THERE ANYTHING I CAN DO ABOUT MY CREDIT REPORT CONSIDERING I NEVER APPLIED FOR THIS CARD OR AGREED TO BE FINICALLY RESPONSIBLE FOR THE CARD.

    • Gerri Detweiler

      Wesley,

      Most business credit card issuers reserve the right to report these cards on personal credit reports if you default. (Capital One reports small business card activity even if the account is current.)

      As for the comment that you never applied for the card, I am not sure what to suggest. Under the Truth In Lending Act, it is illegal for credit card companies to send unsolicited credit cards. I am not aware of an exception for business credit cards. If you want to pursue that angle, you’d need to try to get help from a consumer law attorney.

    • dru

      I have the exact same scenario as you, I never applied for a business credit card and received one in the mail. So I never signed to be a Guarantor. I even went a step further when I could not pay the business credit card, I called B0fA and they said that I was not personally liable because they do not have me as a Guarantor. I missed the card for 4 months now, my credit report has BofA on there now. Don’t know why they will do this since I had an LLC as well.

    • Rob

      GOOD NEWS! READ THIS: Exact same thing happened to me- it was ruining my credit score- paid down form $16,000 to $2000 now over 7 years BUT In May of 2014 they STOPPED reporting late payments to my personal credit score AND it looks like they removed ALL past bas marks!! WOW! Check your score…it may have jumped drastically in May. I’m sure they did this because it was shady to send use unsolicited credit cards. 95% of small businesses fail but they fail slowly…as they get in trouble they lean on their credit cards until it all goes bust. They’ve made millions off that sad fact. At least they are correcting it somewhat. Hope this helps!

  • http://www.linkedin.com/pub/neil-advani/a/37a/8b3 Neil Advani

    Indeed a good news to small business owners. anyways i like the content of your blog its fresh and unique. keep the good information coming please.

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  • big rich

    If i have an SBA loan on my business’ building and i’m late on the payment, will it hit my personal credit? I signed a personal guarantee.

    • Gerri Detweiler

      It’s doubtful, but I can’t guarantee it. These loans typically aren’t reported on the owner’s personal credit unless they default. But you can check your credit reports now to be sure that it’s not showing up. (If the positive payment history isn’t reporting then it’s doubtful that one late payment will show up.)

  • magoo

    I have a small business and we have an SBA loan, which is personally guaranteed by us, the owners and secured by our home. We never miss a payment. We are trying to get a home loan to consolidate the higher interest SBA loan and business related credit cards. We have no mortgage, so our credit report shows only credit card debt and having only one kind of debt is a negative. The SBA loan is not on the credit report. On the one hand, it would show a different kind of debt and regular payments, but on the other hand it would show an additional $65K in debt. Would it be helpful to have it on there and if so how do we get it to show up?

    • http://www.Credit.com/ Gerri Detweiler

      It would be up to the lender to report and you can’t force them to do so. If they report those types of loans then it can be added; if not, you’re stuck. It doesn’t hurt to ask them. (An installment loan like that may be helpful since it’s paid on time. The amount of debt shouldn’t be a problem.)

      If not, you may need to establish a personal loan or some type of installment loan, but it may take some time to build that reference so it will help your scores.

  • http://www.Credit.com/ Gerri Detweiler

    Unfortunately no. If he signed a personal guarantee they can report it on his personal loan. And as I am sure he is aware, the lender may look to him for full payment.

  • http://www.Credit.com/ Gerri Detweiler

    It depends on whether you signed a personal guarantee and the lender’s policy. It isn’t typical that this type of loan would show up, but it could.

  • http://www.credit.com/ Credit.com Credit Experts

    Dear Confused,
    Your attorney really is the best person to ask about this. But if you were a personal guarantor for loans you cannot pay, that may be your best option.

  • Hassan

    Hi, my uncle owns a business and asked me to sign a paper which would allow hus business to buy things from the whole seller . This went wrong and he sold the business. Now the business owes around 20k. Is this going to affect my personal credit report?

    • http://www.credit.com/ Credit.com Credit Experts

      Probably — when you say you “signed a paper,” do you mean co-signed? You can check to see if it’s on your credit reports. Here’s how to get your free annual credit reports.

  • http://www.credit.com/ Credit.com Credit Experts

    There are no laws that specifically prohibit information about business loans on personal credit reports. Anytime an owner personally guarantees a business loan, there is a possibility that the loan could show up on his or her consumer credit reports, though.

  • tony

    Hi,
    I am currently seeking a small business loan. I am renting a house that will come on the market in a few months. Will the small business loan reflect on my personal credit? And ruin my chances of buying a house?
    Thank you, Tony

    • http://www.Credit.com/ Gerri Detweiler

      Not all small business loans report on your personal credit. Is your business incorporated or a sole proprietorship? If the former you may be able to get a loan that does not appear on your credit reports. It depends on the type of loan.

      Or are you able to buy the house first then get the small business loan?

  • JoeLovell

    My business credit card went into default along with my personal cards in 2008. All cards except the business has been satisfied. A third party collection agency still has a negative post on Trans Union. Spring of 2016 will be eight years since the default. Are they not in FDCPA compliance?

    • Jeanine Skowronski

      Hi, Joe,

      If the debt is over seven years old, you may try disputing the account with the credit bureaus.

      Thank you,

      Jeanine

  • Jeanine Skowronski

    Generally, LLC provides protections that a sole proprietorship does not, but you may want to consult a consumer attorney about your specific situation.

    Thank you,

    Jeanine

  • Jarid Buck

    We have recently paid off our SBA backed loan from a private bank. It does not show on my credit report. I was wondering A. Can I request that the paid off loan be placed in my credit report and B. Will it be beneficial ? I would like to note that not all of the payments were made on time and we paid off the loan early in a lump sum.

    • Jeanine Skowronski

      Some business loans do not get reported to the consumer credit agencies. They may get reported to business credit reporting agencies instead. You can contact your lender to get some specifics about how they report.

      Thank you,

      Jeanine

  • Famfirst

    I have been working with a company for almost two years. They have offered a sizable equity stake in the company if I lend my credit score to assist them in getting an SBA loan. I believe in this company and do think the loan will be paid off on time and in whole. If I offer this to the co. should I do it through an llc for an extra layer or is it the same to just use my name and ssn? I landed here because I am really curious if it will show up on my personal credit score as my wife and I are also in the process of trying to qualify for a mortgage.

    • Jeanine Skowronski

      Business loans can affect your personal credit.

      Thanks,

      Jeanine

  • Inquiring Mind

    HI, I have my own business, registered Corporation. My question is : if I were to get a business loan for start up expenses, would it show up on my personal credit file? And if yes, is there a way to get a business loan without affecting my personal credit file?

  • Jeanine Skowronski

    You should be able to. More on filing disputes here:

    https://www.credit.com/credit-repair/credit-repair-content/dispute-credit-report-error/

    Thanks,

    Jeanine

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