Does an LLC have its own credit score?

Denise Elizabeth P
Senior Financial Editor & Contributor

Date Published: August 23, 2022

Starting a business is like opening a giant can of worms.

Inside this can you’ll find questions you haven’t even considered before, you’ll find challenges, you’ll find struggles, and you’ll find amazing rewards if you stick to it.

One of the initial areas that can cause a lot of confusion for entrepreneurs and new business owners is the impact that their personal credit can have on their business.

This becomes even more of a concern if the business owner doesn’t have the greatest personal credit or runs into some financial difficulties in their personal life and worries if it will hurt their business and their business’ cash flow.

On the other hand, if someone has fantastic personal credit then they’re probably wondering if this will benefit the business.

Regardless of whether we’re talking about good credit or bad credit on the personal level, let’s go over how this impacts a business.

Just like an individual person has a credit score that keeps track of how they manage their finances, businesses have a credit score, too.

Having a good track record will help you to open up a business line of credit with favorable terms, and that can play a huge role on how quickly you’re able to grow.

Access to credit can be like skipping ahead in time for a business. Instead of having to build everything from scratch, you can use these funds to grow more quickly.

But before you can do that, you need to get approved, so here’s what you need to know if you’re wondering…

Does an LLC Have Its Own Credit Score With The Rating Agencies? 

llc formation

Yes, a business has its own credit score and credit report.

When you start your business and start applying for credit, your personal credit history and score will be taken into account.

Since you’re in charge of the business, even if the business is its own entity, the business doesn’t have a proven track record yet so your personal credit is all the banks have to work with. 

An LLC is a passthrough entity, and while it is its own thing, it’s still tied to you as an individual.

There are certain ways in which an LLC helps to reduce personal liability, but it still has a tie to your own credit score.

You can take steps to separate your business from your own personal finances and you’ll get a credit score for your business that you can improve separately from your personal score.

Separating Your Business From Your Own Credit Score

There are steps you can take to separate your business’ finances from your own, and to establish a credit score for your business.

Business credit scores are based on a rating system from 0 to 100.

You’re aiming for a score of at least 75 in order to start getting favorable terms and taking advantage of having a strong business credit rating.

The basic steps to start the process of establishing credit for your LLC are as follows:

Having your personal and business finances separate is also very helpful when it’s tax season and you need to determine which costs are associated with the business and which ones are personal.

This is another very important reason to consider establishing an LLC. 

Yes, it means that you’ll need to take steps to build up a second credit score for your business but the numerous advantages make this a good decision for most small business owners.

But what if you don’t want to go this route, and you want to run everything through your own personal creditworthiness, rather than the business?

A sole proprietor can take out a business loan based on their own personal creditworthiness. 

When a new LLC tries to get a loan or a credit card, it’s also based on the entrepreneur’s own creditworthiness, but the difference is that that’s just a starting point for the LLC to establish its own credit history and score, whereas the sole proprietor’s business activities will be directly tied to their personal credit, rather than just using their persona score as a stepping stone to build the business’ credit with an LLC. 

An LLC And It’s Own Credit Score: Final Thoughts

Initially, your personal financial standing can be taken into consideration when you try to build credit for your business, but setting up a separate entity for the business and taking steps to establish it independently will ensure that your business is building its own credit score.

By establishing a credit score for your LLC, you’ll gain countless advantages including better rates from suppliers, lower interest rates, and easier access to capital.

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  1. Ohio State University "8 Reasons Your Business Credit Score Matters" Page 1 . August 23, 2022