Does my personal credit affect my LLC credit? (2024)

Does my personal credit affect my LLC credit?

Having bad personal credit will generally make it more difficult to get a bank loan to start or expand your LLC. However, over time, your LLC can build its own credit which will allow you to take out loans or credit cards in the name of your business.

In most cases, your personal credit will impact your business far more than the other way around. Some business credit card applications will require your Social Security Number. A landlord may want to run a personal credit check before leasing you a space. A small business loan may need a personal guarantee.

In most cases, a card issuer will check your personal credit report and score when you apply for a new business credit card. This is known as a hard credit inquiry, and it can have a small but temporary negative impact on your credit score. Hard inquiries may impact your FICO® Score for up to 12 months.

Credit Scores and Reports

Banks and credit unions don't typically run hard inquiries with credit reporting agencies when evaluating your checking account application. However, they'll probably perform a soft pull to check out your business and personal credit scores.

It's possible to get a business line of credit with bad personal credit, but it can be difficult—you'll run into the same challenges as you would applying for a business credit card. Lenders prefer applicants with strong credit scores, though some alternative lenders might be more flexible here.

Like most states, California doesn't permit personal creditors of an LLC member to have a court order that the LLC be dissolved and its assets sold to pay off the creditor. So, fortunately for you and your fellow LLC owners, you don't need to worry about your company involuntarily closing due to your personal debt.

This EIN allows your LLC to open bank accounts, apply for loans, and build credit in its own name. An LLC starts with no credit score. Just like an individual, an LLC must build its credit over time by engaging in responsible financial behavior, such as taking out loans and lines of credit and making payments on time.

Your personal credit score is a factor for every business loan, but it's really about how much it factors in – and that varies business to business. Sometimes business credit scores don't contain a lot of information, especially if it's only been recently established.

What is the 5/24 rule? Many card issuers have criteria for who can qualify for new accounts, but Chase is perhaps the most strict. Chase's 5/24 rule means that you can't be approved for most Chase cards if you've opened five or more personal credit cards (from any card issuer) within the past 24 months.

You need a personal credit score of 700 or higher to qualify for the best business credit cards. The exception to this rule is corporate cards, which usually don't check your credit score. Instead, these cards require that you have a certain amount of capital in a business bank account.

Why do I keep getting denied for a business bank account?

Application Declines Can Stem from Bad Credit, Tax Liens, Prohibited Business Types and More. Applying for a merchant account can be an intimidating process, especially if it is your first time in the marketplace.

It's Harder To Track Business Expenses

When you use your personal credit card for business expenses, it can be difficult to track tax-deductible purchases. As you review your credit card statements, you might not remember what you bought on each and every purchase and whether the purchase was a business expense.

If your LLC has debts taken out in the company's name, only the LLC's business credit report will be impacted by whether you repay your debts on time. An LLC loan will only impact your personal credit if you cosign or guarantee it. If you don't do so, your personal credit report will remain unaffected.

The fastest way to build business credit for an LLC is to open a business credit card and make consistent, on-time payments. Additionally, establishing trade credit lines with vendors and suppliers who report to business credit bureaus can help build credit quickly.

The answer is yes, you can. The process is very similar to balance transfers between personal cards.

An LLC “protects” your personal assets by standing in as a separate legal entity in business disputes and lawsuits. Again, let's return to the example of a business customer suing your company. If their lawsuit is successful, you might be required to pay damages.

Although an LLC helps protect your personal assets from liability for business debts, lenders often circumvent this barrier by requiring a personal guarantee. When you sign a personal guarantee, you agree to assume personal liability for repaying the loan if your company cannot make the payments.

Whether you operate as a limited liability company or corporation, your business has the ability to establish a credit file separate from you as an individual. When you register a business (LLC, LLP or corporation) it becomes recognized as a separate legal entity with the ability to enter into contracts.

Is it hard to get a business credit card with an LLC?

Yes, a newly formed LLC can get a credit card, though approval often depends on the business owner's personal credit score, as many business cards require a personal guarantee.

Starting an LLC will not directly affect your personal credit score unless you decide to personally guarantee or cosign a loan for your company.

Can I get a startup business loan with a 500 credit score? Yes, startup business loans offer lenient credit requirements as low as the 500s, but your options will be limited. Most startup loans have a minimum FICO Score of 600 or higher and require at least six months in business.

Applying for your first business card often requires a hard inquiry into your personal credit history. With nowhere else to draw from, potential lenders may look at anything you've used to prove yourself as a worthy (or unworthy) borrower — personal credit being the most obvious source.

The Bottom Line. Business loans help you expand operations, cover payroll, pay for supplies, and manage cash flow. When you have poor or bad credit, finding a lender can be difficult, but there are many loan options available with credit scores as low as 500. This includes loans from online lenders.