Understanding Business and Personal Credit

You need credit. But there are two distinct types of credit. There's personal credit, and there's business credit. And they're fundamentally different in how they function and how they're used.

Both types of credit can impact your personal and business life.

So, dive in and give yourself credit for learning more and understanding the differences! 

What Is Personal Credit?

Personal credit is based on your credit history. It includes your ability to pay back your debts on time and in full. Examples include:

  • Utility bills
  • Cell phone bills
  • Vehicle loan/lease payments
  • Mortgage payments
  • Insurance payments
  • Installment loan payments
  • Medical bills

And more.

You will get a score based on your payment history and several other factors, including the amount of debt you have. Your score is generated by the three main credit bureaus: Experian, Equifax, and TransUnion. The higher the score*, the better.  

*According to NerdWallet, 690 to 719 is considered a good credit score on the commonly used 300-850 credit score range.

Great, but who uses these scores, and for what? 

Personal credit scores are used by lenders, banks, credit card companies, landlords, and others to determine whether or not they should extend credit to you. And if you want good things in life, you'll need good credit. 

How To Build Personal Credit

There are several different ways to build personal credit. And all of them start with you buying (or leasing) something:

  • Financing or leasing a vehicle
  • Renting a house or apartment
  • Purchasing goods/services with your credit card
  • Paying college loans

And if you need to start establishing personal credit, you can apply for a credit builder loan. Of course, it's one thing to have credit available to you; it's quite another to use it wisely. 

That means you must pay your bills on time, every time. Because doing that can help increase your credit score. 

What Is Business Credit?

In a nutshell, business credit is the credit history of a company or business entity. 

OpenWorks (the company) has business credit. So do OpenWorks franchisees. But business credit scores are calculated differently than personal credit scores. From Experian:

"Your Experian credit score is calculated by a statistically derived algorithm designed to determine risk based on multiple factors.

  • Credit: Number of trade experiences, balances outstanding, payment habits, credit utilization, and trends over time
  • Public Records: Recency, frequency, and dollar amounts associated with liens, judgments, or  bankruptcies
  • Demographic Information: Years on file, Standard Industrial Classification (SIC) code, and business  size"

And your score is essential, as it determines whether or not you'll have the credit you need to purchase and lease equipment, replenish your supplies, establish accounts with vendors, and more. 

Bottom line?

A good business credit ranking is essential to secure financing, access better interest rates, and help build strong relationships with suppliers and vendors.

How to Build Business Credit in 6 Steps

  1. The starting point for building business credit is to legally establish your company and designate it as either a sole proprietorship, corporation or limited liability company.
  2. Hire a business attorney and/or an accountant to help you file the appropriate paperwork. You'll also have already chosen your company's name by this stage. 
  3. Next, obtain a federal tax ID number and open a business checking account. You're now able to open accounts with vendors and suppliers.  
  4. Apply for a business credit card or two. 
  5. Once you're approved and have your card(s) in hand, use them to make your day-to-day business purchases.
  6. Pay your credit card bills on time! And remember, each time you submit a payment, it will be reported to one or more credit bureaus. That alone informs them of your company's presence, which starts the process of building business credit.          

Focus On Maintaining Good Business Credit

Maintaining good business credit is essential for your business. And it's simple, really. Just continue to make all your payments on time.  

Be sure to monitor your credit reports on a regular basis. Twice a year works. Finally, if you have any payment-related disputes with vendors, commit to solving them quickly to not hurt your credit rating.   

Business Credit and Franchising

If and when you become the owner of an OpenWorks franchise-or any franchise business, nobody expects you to have business credit established right out of the gate. These things take time. But, you'll want to get your business credit established as quickly as possible.

That’s why OpenWorks offers in-house financing for a portion of the initial franchise package, as well as additional account growth. OpenWorks is a facilities management company that offers its franchisees consistent training and helps them get their commercial cleaning business off the ground with customers from the start.

So, with OpenWorks' in-house financing, you'll be poised to grow your business, which is the ultimate goal.

In most cases, your growth will involve hiring additional employees, buying more equipment, stocking additional supplies, and more. And all of that, in one way or another, requires solid business credit.   

To summarize, there's a big difference between personal credit and business credit. 

Both are important, from how you establish it to how you can leverage it. But if you want to become the owner of a successful growing business with a solid financial reputation, your focus must be building and maintaining excellent business credit.  


This article was written by The Franchise King®, Joel Libava. He’s a 20+ year industry veteran, the author of two helpful books on how to buy and research franchises, and a Franchise Ownership Advisor.

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