Can Business Loans Affect Personal Credit?

Business reports are different from personal credit reports but for some businesses, their business account can appear on their personal credit report. The initial years of business are fraught with struggle. People use their personal credit to apply for loans to set up the business.

When do business loans appear on personal credit report?

Since personal credit report and scores are different from business reports, people often wonder if their business loans can affect personal credit. The answer to this is both ‘yes’ and ‘no’. Though there are no laws clarifying this, it depends upon the business and how the loan has been taken. It also depends upon the lender. Business loans general do not make an appearance in personal credit reports but there are a few exceptions.

1. If you guarantee the business and then fall back on payments, the lender will report the business loan to the credit bureaus and it will appear on your personal report.
2. When you use your credit card meant for personal use for business purposes, the debt will appear on your credit report, as will the payment history. You have to make payments on time to ensure that it does not appear as a negative item.
3. When you use “home equity line of credit” for business purposes, your personal credit score will be affected.

How to Keep Business loans away from personal credit report?

By following a few rules, you can keep your business loans out of your personal credit report.

Use S Corp., C. Corp or LLC to set up your business structure properly.
4. 1. Set up your business structure properly so that your personal credit is separate from your business credit. This will ensure that your business debt is not reported to your personal credit.
Personal credit reports pulled by lenders for verification appear as hard inquiries and affect credit score.
5. 2. Use a business card that does not report to credit agencies but ensure that all bills are paid on time. This will double ensure that your personal credit report is clean.
6. 3. Before taking a business loan, clarify from the lender if it your personal credit report will be pulled out and verified. Also ask about repayment plans and the lender’s debt reporting policy.

4. Tapping your home equity to fund your business should always be the last option. It affects your personal credit. Before using this alternative, talk to a financial advisor. If you have a retirement plan like 401(k), ask, if you can take a loan against that.

Even if your loan is a business loan, if you have used your personal credit card for it or have guaranteed it personally, it will appear on your credit report. Therefore, always pay the bills on time and keep your business and personal credits separate.