2020 Enterprise Group LLC personal credit is connected to you by your Social Security number. Your business credit history is linked to you by your Employer Identification Number (EIN) or Tax ID Number, which is how the government recognizes your business for tax purposes. You can apply for an EIN online and receive it almost instantly. Technically, if you’re a sole proprietor, you don’t need an EIN for taxes, but to establish business credit, you will.

Your personal credit history is curated by the three major credit bureaus, Equifax, Experian, and Transunion, and you have one profile with each. Experian and Equifax also have business credit reporting services. Your business profile is separate from your personal credit history.

There are credit reporting services that only deal with businesses, with Dun & Bradstreet being the largest and best known. If you have more than one business, you can have a separate report for each, as long as it has its own EIN.

Personal loans aren’t nearly as common a way to borrow money as credit cards. According to the Federal Reserve, only 10% of Americans applied for a personal loan in 2016, while roughly 65% applied for credit cards. However, their popularity is growing. TransUnion reports that personal loans in the United States grew by double-digit rates every year between 2014 and 2017, reaching an all-time high of $107 billion by the middle of 2017.

The type of borrowing most people know best is credit cards, which are a form of revolving debt. They give you access to a pool of cash that you can dip into as needed. You can take as long as you like to pay off this debt, as long as you meet the minimum payment each month, and the interest rate is likely to vary over time.

Personal Credit are completely different. They’re a type of installment loan, in which you borrow money from a bank or other lender and pay it back in regular monthly payments over a fixed period of time. The term for most personal loans is between two and five years, but it can be as little as one year or as long as seven. The interest rate is usually fixed over the entire life of the loan.

There are two main types of personal Credit:

  • Secured Personal Credit. With a secured loan, you offer the bank something of value as collateral, such as your house, car, or the cash in a CD or savings account. If you’re unable to make your payments, the bank can seize your collateral to pay off the loan.
  • Unsecured Personal Credit. Most personal loans are unsecured – not backed by any sort of collateral. Instead, the bank looks at your financial history to decide whether you qualify for the loan. Because these loans are riskier for the bank, they tend to come with higher interest rates.

Advantages of Personal Credit

If you need to borrow money, there are several reasons why a personal loan might be a good choice. For instance:

  • They Have Many Uses. Many types of loans, such as mortgages, auto loans, and student loans, can only be used for one specific purpose. A personal loan, by contrast, can be used for anything you like.
  • You Don’t Need Collateral. Most personal loans don’t require any kind of collateral. This makes them a good choice for people who don’t have anything of value to borrow against.
  • You Can Borrow Any Amount. Typical amounts for a personal loan range from $1,500 to $100,000. That means you can borrow a lot more with this type of loan than you could with a credit card, yet you can also use one if you only need a relatively small amount.
  • Rates Are Reasonable. Personal loans are often cheaper than credit card borrowing. For a borrower with a good credit score, interest rates for this type of loan can be as low as 5% APR, according to this article from Credit Karma. By contrast, credit cards usually charge at least 13% APR, even for the most creditworthy customers.
  • You Don’t Need Great Credit. It’s possible to qualify for a personal loan even if your credit is poor. Some lenders are willing to offer personal loans to customers with credit scores of 600 or even lower. These borrowers are likely to pay higher interest rates – as much as 36% APR. However, that’s still much less than the interest on a payday loan, which is one of the most common options for subprime borrowers.
  • You Have Plenty of Time to Pay. Another big problem with payday loans is that you only get a couple of weeks to pay them off in full. Many cash-strapped borrowers can’t manage this, and so they end up rolling over the loan or taking out another one right away. Personal loans give you at least a year to pay off the debt, breaking it down into much smaller and more manageable monthly payments.

Why you need a good credit score?
Low Interest Rates on Credit Cards and Loans

The interest rate is one of the costs you pay for borrowing money and, often, the interest rate you get is directly tied to your credit score. If you have a good credit score, you’ll almost always qualify for the best interest rates, and you’ll pay lower finance charges on credit card balances and loans. The less money you pay in interest, the faster you’ll pay off the debt and the more money you have for other expenses. 

Better Chance for Credit Card and Loan Approval

Borrowers with a poor credit history typically avoid applying for a new credit card or loan because they’ve been turned down previously. Having an excellent credit score doesn’t guarantee approval, because lenders still consider other factors such as your income and debt. However, a good credit score increases your chances of being approved for new credit. In other words, you can apply for a loan or credit card with confidence.

More Negotiating Power

A good credit score gives you leverage to negotiate a lower interest rate on a credit card or a new loan. If you need more bargaining power, you can take advantage of other attractive offers that you’ve received from other companies based on your credit score. However, if you have a low credit score, creditors are unlikely to budge on loan terms, and you won’t have other credit offers or options. 

Get Approved for Higher Limits

Your borrowing capacity is based on your income and your credit score. One of the benefits of having a good credit score is that banks are willing to let you borrow more money because you’ve demonstrated that you pay back what you borrow on time. You may still get approved for some loans with a bad credit score, but the amount will be more limited.

Easier Approval for Rental Houses and Apartments

More landlords are using credit scores as part of their tenant screening process. A bad credit score, especially if it’s caused by a previous eviction or outstanding rental balance, can severely damage your chances of getting into an apartment. A good credit score saves you the time and hassle of finding a landlord that will approve renters with damaged credit. 

Better Car Insurance Rates

Add auto insurers to the list of companies that will use a bad credit score against you. Insurance companies use information from your credit report and insurance history to develop your insurance risk score, so they often penalize people who have low credit scores with higher insurance premiums. With a good credit score, you’ll typically pay less for insurance than similar applicants with lower credit scores.

Get a Cell Phone on Contract With No Security Deposit

Another drawback of having a bad credit score is that cell phone service providers may not give you a contract. Instead, you’ll have to choose one of those pay-as-you-go plans that have more expensive phones. At the least, you might have to pay extra on your contract until you’ve established yourself with the provider. People with good credit avoid paying a security deposit and may receive a discounted purchase price on the latest phones by signing a contract.

Avoid Security Deposits on Utilities

These deposits are sometimes $100 to $200 and a huge inconvenience when you’re relocating. You may not be planning to move soon, but a natural disaster or an unforeseen circumstance could change your plans. A good credit score means you won’t have to pay a security deposit when you establish utility service in your name or transfer service to another location.