When it comes to questions of credit reporting and credit scoring more often than not there are no black and white answers. There are many shades of grey, nuances, and even inconsistencies which make it impossible to give a blanket response that will adequately and accurately satisfy the answer you may seek to a seemingly simple credit related question. In fact, most of the time there is no clear answer to a credit related question.
You cannot correctly say, for example, that any given credit inquiry will lower a person’s credit scores by any specific number of points. That would be an oversimplification of how credit scoring really works. For one consumer a single new credit inquiry might have no impact on his credit scores. For the next consumer he might see his scores decline slightly as a result of a new inquiry. A third consumer might see a much more significant decrease in his scores when a new inquiry is added to his credit reports. For this reason it should come as no surprise that the answer to the question “Will an account opened for my business impact my personal credit reports?” is a resounding…”It depends.”
Business Accounts on Personal Credit Reports
It is the lender that ultimately decides whether or not to report an account to any credit reporting agency. Depending upon the account type and the lender’s policies an account opened in your business name could appear on some or all of your business credit reports (i.e. D&B, Equifax Business, or Experian Business), the account could appear on some or all of your personal credit reports (i.e. Equifax, TransUnion, or Experian), or the account information might not be provided to any credit reporting agency whatsoever.
If a business account does not currently appear on your personal credit reports then the account will not impact your personal credit scores in any way. Remember, if an item is absent from your personal credit reports then it cannot be considered by credit scoring models like FICO or VantageScore. Other business accounts might show up on your personal credit reports immediately and, if they do, they will have the same impact on your credit scores as if they were a garden-variety consumer account.
For example, if you open a business credit card account and the lender does report to the consumer credit reporting agencies then carrying a balance on the account could have a negative impact on your personal credit scores even if your business never misses a credit card payment. Furthermore, the account could lower your personal buying power with future lenders since the business account would likely be calculated into your personal debt to income ratio (DTI). While it is not typical for a small business lender to report business accounts to the consumer credit reporting agencies, it does sometimes occur but if, and only if, you have agreed to be personally liable for the debt.
Of course, a business owner may still not be completely off the hook, personally speaking, for business accounts that do not actively appear on his consumer credit reports. Even business accounts that are currently absent from your personal credit reports could still show up down the road if your business gets into trouble and fails to honor the terms of the agreement.
Personal Guarantees More Fully Explained
Generally when a business owner applies for a new account for his business he must complete a credit application either in writing or verbally. In most business credit applications, especially for small businesses, there resides verbiage somewhere within the agreement that will obligate the business owner to be personally responsible for the debt in the event that the business fails to pay according to terms. If you apply for a business account and are required to supply your personal social security number as part of the application process then you can be relatively certain that a personal guarantee clause exists somewhere within your loan/credit card agreement. In fact, personal guarantees are generally the rule, not the exception.
Remember, if you personally guarantee a business loan then your personal credit is ultimately on the line until the account is satisfied and closed. It may not seem fair, but it is perfectly legal. As a result, you should make sure that you fully understand any personal risk you may be incurring before you sign on the dotted line for your business.