When you run your own therapy practice, your credit history doesn’t only affect your personal finances. It also impacts your ability for your business to borrow money in the future.

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That includes access to business loans, lines of business credit, and business credit cards, all of which can help you cover cash flow gaps or fund business expansions.

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Your therapy practice can build up its own creditworthiness, too. That’s a good thing—but there are steps you need to take ASAP to get the ball rolling.

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Here’s everything you need to know about managing credit as a self-employed therapist—from building your own credit, to the relationship between your personal and business credit scores, to the best moves to make now so that both will improve.

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What is credit?

First, the basics. What are we talking about when we talk about credit?

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Credit is your ability to borrow money while providing guarantees that you’ll pay it back later (almost always with interest). In this sense, the more credit you have, the more you’re able to borrow.

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But “credit” is also used as a term referring to your credit history—past records of money you’ve borrowed and paid back. This information appears on your credit report. In this sense, the better your credit, the better your credit history, and the more likely you will be approved to borrow more in the future.

The three types of credit

There are three types of credit both individuals and businesses can access:

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• Revolving credit: Money you borrow from an account that remains open. You can borrow and repay funds on an ongoing basis. Examples include credit cards and lines of credit.
• Installment credit: Money you borrow as a lump sum and then pay back with installments until the total debt is settled. Examples include personal and business loans and vehicle financing.
• Service credit: The ability to use services such as utilities (water, electricity, gas, telephone) prior to paying for the service. For instance, after one month of using electricity, the electric company sends you a bill for the amount you used. Until you pay this amount off, it counts as funds you’ve borrowed. 

Credit reports

A credit report compiles detailed information from your credit history. Lenders use credit reports to determine your creditworthiness, but you can also request your own personal credit reports.

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Credit reports are prepared by three credit bureaus: Experian, TransUnion, and Equifax. Creditors report your activity to these bureaus, which collect the information and use it to generate reports.

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A credit report doesn’t include details about your income or how much money you have in the bank. But it every report does include:

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• Personal information, including your name, address, phone number, date of birth, and information on your spouse or any co-applicants for credit.
• Accounts, which include every type of credit account—such as credit cards, loans, lines of credit, and mortgages—you have opened. The report specifies when the account was opened, whether it is still open and, if it is closed, when it was closed. Crucially, the report includes information on whether you have made payments in a timely manner or fallen behind.
• Public records, including those of bankruptcies, liens, or legal proceedings against you. Criminal records (e.g. arrests) are not included.
• Inquiries, including any recently made by lenders or potential lenders into your credit history. These fall into two categories: Hard credit checks, which negatively impact your credit score for a short period; and soft credit checks, which do not impact your credit score.

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The three credit bureaus differ slightly in how they report this information, and it’s possible for data that appears on one bureau’s report not to appear on another’s.

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Information on your credit report typically appears for up to seven years. After that point, it no longer shows up on your report. The only exception is Chapter 7 bankruptcy, which remains on your report for up to ten years.

Your credit score

Your personal credit score ranks your creditworthiness based on the information in your credit reports. They’re calculated using a system devised by FICO, and provide a summary of your overall creditworthiness.

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(Another system, VantageScore, differs slightly from FICO. But the majority of lenders use FICO.)

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For personal credit, ratings typically range from 300 to 850. FICO breaks scores down into different rankings:

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• Poor: Less than 580. Below-average ranking, indicating potential risk to lenders.
• Fair: 580 – 669. Still below the average. Nonetheless, many lenders will approve lending to applicants with this score.
• Good: 670 – 739. At or slightly above the average, indicating to lenders that the applicant is trustworthy.
• Very Good: 740 – 799. Above average, indicating to lenders that the applicant is very dependable.
• Exceptional: 800 or more. The applicant is well above average, and represents an exceptionally low risk to lenders. 

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Your credit score increases or decreases over time depending on your credit history. 

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While your credit score is a good overall indication of your likelihood of being approved by a lender, it isn’t the final say. Different lenders have different methods of qualifying applicants, and may take into account other factors—like your income or your debt-to-income ratio (DTI)—when considering your application.

What affects your credit score?

Using FICO, five factors affect your credit score, each in a different proportion:

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• Payment history — 35%: More than one third of your score is based on whether you have made payments to lenders on time.
• Amount owed — 30%: This typically takes the form of credit utilization, which is the amount of available credit you currently use. For instance, if you have $24,000 total credit available to you, and you have borrowed $14,000, your credit utilization is higher than it would be if you had borrowed only $10,000. Generally speaking, the lower your credit utilization the better.
• Length of history — 15%: The longer you keep credit accounts open, the more they benefit your credit score.
• Credit mix — 10%: All else being equal, a greater diversity of types of credit is better for your credit score. For instance, if you have a credit card, a line of credit, and a mortgage, you have a more diverse credit mix than if you only had credit cards.
• New credit — 10%: Credit for which you’ve recently been approved may indicate to lenders that you’re a higher potential risk. 

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By keeping in mind the relative importance of each factor, you can plan to use your credit (and apply for new credit) in ways that help you improve your score over time.

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Recent changes to credit law

Relatively recent changes to credit laws—as of 2023—have impacted both how credit reports are compiled and how borrowers manage their own credit.

Free credit reports

In response to financial challenges during the pandemic, credit bureaus made data more accessible to consumers. 

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Since 2023, you have been able to request free weekly credit reports. If the cost of running frequent reports previously kept you from keeping a close watch on your credit score, consider the barrier removed. 

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For more information on how to access these reports, check out this USA Today article on How to Get Free Weekly Credit Reports.

Exclusion of certain medical debts 

Previously, unpaid medical debts could pile up and drive down your credit score. Since 2023, however, that has changed. Now:

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• Paid medical collection debts no longer appear on credit reports (from July 1, 2023 on)
• Unpaid medical debt takes one year, rather than six months, to appear on reports (from July 1, 2023 on)
• Medical collection debt under $500 no longer appears on credit reports (from early 2023 on)

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These changes make it easier to build credit. At the time they were made, they removed 70% of medical debts from Americans’ credit reports.

Rental payments included

Prior to 2023, rental debts and payments didn’t appear on credit reports. 

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But now they do, and that’s good news for renters aiming to build credit. Making timely rental payments now helps you improve your creditworthiness. 

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If you’re already in the habit of paying rent on time, you can enjoy a gradual improvement in your credit score. But keep in mind that late payments could have a negative impact.

FICO 10 and 10T

FICO offers a number of models for lenders to use when assessing applicants’ creditworthiness. Two new models, FICO 10 and FICO 10T, recently changed how credit is reported.

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FICO 10 acts as a snapshot of a borrower’s current creditworthiness. FICO 10T looks at trends, showing how the borrower’s credit report has changed over time.

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Without getting too technical, that means that lenders can now take into account not just your overall credit history but how that history has developed. They use that data to project future activity and decide whether it’s in their best interest to lend to you.

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Some ways you can adapt to the impact of FICO 10 and FICO 10T to keep your credit score from slipping:

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• Even if you habitually run up high balances on credit cards and lines of credit, make it a habit to pay them down each month in multiple installments, rather than paying down one large lump sum at the end of the month.
• Keep your credit utilization low (under 30% is good, but under 10% is best).
• If you’re planning to consolidate your debt with a personal loan, avoid running up your credit cards before you do so. Viewed through the lens of FICO 10T, this can look like a calculated move on your part to intentionally incur debt before switching to a lower interest payment plan.

Your personal credit vs. your practice’s credit

So far, this guide has covered different types of personal credit and personal credit reporting.

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But what about your therapy practice? Can it build credit? And how does your personal credit affect it?

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Here’s an overview of the difference between personal credit and business credit as they apply to your therapy practice, and how they impact one another.

When does your therapy practice start building credit?

Your business starts building credit as soon as it has:

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1. An employer information number (EIN)
2. A Data Universal Numbering System (DUNS) number

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Getting an EIN for your therapy practice

An EIN identifies your therapy practice to the IRS as a business. Sole proprietors can use their Social Security as tax identification when filing, but any other entity type—including a limited liability company (LLC) or S corporation—must register for an EIN. 

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Even if you are a sole proprietor, however, you can apply for an EIN. Applying is quick and free with the EIN Individual Request Online Application.

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Getting a DUNS number for your therapy practice

DUNS numbers are created and managed by Dun & Bradstreet. The company launched DUNS numbers in 1963 as a means of identifying businesses and allowing them to build credit histories.

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When your practice has a DUNS number, banks, lenders, and financial institutions recognize it as a business, which allows them to report its activities to credit bureaus.

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US-based businesses can apply online for a DUNS number for free. After completing an application, it can take up to 30 days before you receive your number.

Differences between business credit and personal credit

At a high level, business credit and personal credit are very similar. You build credit over time by keeping your credit accounts open, borrowing money, paying it back, and keeping credit utilization low.

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Beyond that, though, there are some key differences to keep in mind:

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The scoring system

Your business credit score is measured from 0 to 100, rather than the 300 – 850 system used for personal credit.

What’s more, the lower your business credit score, the less risk you present to lenders. 

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Here is how business credit scores are ranked, according to Experian, and their equivalent personal credit scores:

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According to data collected by the Federal Reserve, about two thirds of businesses have low risk ratings, while the remaining third have medium to high risk ratings (and just 8% of all businesses surveyed are considered high risk).

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Information on credit reports

Business credit reports include all of the information that appears on personal credit reports, including payment history, credit utilization, legal judgements (like bankruptcy or liens), and credit inquiries.

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But, depending on the reporting bureau, it may also include:

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• Financial stability risk rating, based on the state of your industry
• Borrowing and payment trends
• Business lease and insurance histories
• The age of your business
• Annual sales data

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For a closer look, check out sample credit reports from these bureaus:

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• Dun & Bradstreet
• Experian
• Equifax
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Credit transfer

With personal credit, your credit history stays with you. Even a major event, like Chapter 7 bankruptcy, doesn’t wipe out your report. In effect, your business report is tied to you for life.

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With business credit, however, your business’s credit history is tied to your business. Meaning, if you sell your practice, the new owner or owner will take over its credit history.

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That’s good to keep in mind if you have plans to one day sell your practice. It may prove more attractive to buyers if it has a good credit score, so you should factor credit building into your long term plans.

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Capacity and loan terms

Once your practice has established a good credit history, it will be able to borrow more money than you would be able to borrow personally. And if it takes out loans, then in addition to larger amounts, it will likely be granted longer terms and a lower interest rate.

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That may not seem like the case at first. When you’re just starting to build your practice’s credit, you will likely have a business credit card with a low limit, and little likelihood of qualifying for a loan without a personal guarantee. But if you continue building your credit, you will eventually have access to more capital, under more favorable terms, to help your practice grow.

How personal credit impacts business credit

Your personal credit score affects the likelihood that you will be approved for business credit. 

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When you apply for a business credit card, loan, or line of credit, the lender typically runs a hard check on your personal credit. All else being equal, the higher your personal credit score, the more likely you are to be approved.

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So, once your practice has established a credit history, it benefits you to continue maintaining good personal credit.

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But the opposite does not apply. If your business creditworthiness is low, it won’t impact your ability to access personal credit. In fact, the only effect business credit is likely to have on your personal credit is positive. Building good business credit can improve your personal ability to borrow.

Types of business credit

The most common types of credit for small businesses are:

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• Business credit cards. These work like personal credit cards, but may include added features to allow for use by employees. Some business credit cards offer rewards, but many also charge annual fees.
• Business lines of credit. A business line of credit is similar to a personal line of credit: You are able to borrow up to a certain limit, and then pay back what you have borrowed and borrow more; you only pay interest on money you borrow. A business line of credit may have a higher limit than a personal one.
• Loans. Business loans typically tend to be larger than personal loans, with longer repayment terms and lower interest rates. Newer businesses often need to provide a personal guarantee in order to qualify for a loan.
• Vendor accounts. Vendors may extend credit, allowing you to pay for purchases within a 30- or 60-day window. These aren’t typically relevant (or useful) for therapy practices.

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Credit best practices

Good habits help build good credit. That applies whether you’re trying to improve your personal credit score or build up your practice’s creditworthiness. 

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Make these habits second nature, and you’ll see both your personal and your business credit improve:

Check your credit reports every 3 – 4 months

While you can technically request a free report every week, consumer finance analyst Beverley Harzog recommends checking your credit report every three to four months. That’s frequent enough to help you keep on top of changes to your report and spot errors.

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Mistakes do happen. For instance, late payments showing up on your report should be removed after seven years, but that isn’t always the case. It’s also possible that credit accounts you never opened may be falsely attributed to you.

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If you spot an error on your report, contact the reporting bureau directly to clear it up. 

Keep credit utilization low (but not too low)

The general consensus among experts is that you should maintain a credit utilization of 30% or less in order to keep a Good or Excellent score. For instance, if your total available credit is $10,000, make sure you’re never using more than $3,000 of it.

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Credit bureaus use utilization to predict your likelihood of paying back credit, which affects your overall creditworthiness; in fact, utilization makes up about 30% of your score.

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The 30% limit on credit utilization is not a goal. If you can keep your utilization below that, you should—it will improve your score.

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That being said, a credit utilization of 0% is not ideal. You benefit most from having a utilization just above this amount—say 1% or 2%—rather than none at all. You should have some credit, at least, in order to demonstrate you’re able to manage it and pay it back on time.

Diversify your credit

Your credit mix only accounts for 10% of your credit score; if the only credit you have on your report consists of credit cards, don’t lose sleep over it. 

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Still, you may be able to diversify your credit mix without too much effort, and without putting yourself at additional risk. For instance, if you’re thinking of getting another credit card to help you build your credit, you may want to consider applying for a line of credit instead.

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Not only is a line of credit likely to have a lower interest rate, but the simple fact that it’s a different type of credit will help to improve your score.

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For other types of credit—namely installment credit in the form of loans—tread more carefully. Unlike revolving credit, a loan locks you into set monthly payments. Falling behind on those payments could do more to hurt your creditworthiness than diversifying your credit would help.

Make timely payments

Paying your bills on time is the simplest, most direct way to maintain a good credit rating. Timely payments make up more than one third of your credit score. Plus, when you fall behind on payments, you risk having your accounts sent to collections, which leaves a negative mark on your credit history.

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Payments are easier to manage when you make them a part of your monthly budget. For more, check out our guide to budgeting for therapists.

Keep credit accounts open

If you’ve been working hard to pay down a credit card or a line of credit and you finally achieve your goal, you may be tempted to say “good riddance” and shut the account down for good.

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Word of advice: Don’t. Even if you have no intention of using a credit account, keeping it open helps to keep your total available credit high. The more available credit you have, the easier it is to maintain a low credit utilization ratio.

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Also, the length of your history as a borrower helps to prove your creditworthiness. It makes up 15% of your credit score.

Use tools to help build your credit

If your credit score is low, there are various financial tools you can use to help improve it:

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A secured credit card

If your credit score is Poor, or if you’re just emerging from bankruptcy, a credit card secured with your own funds helps you start rebuilding credit. 

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You make a deposit with the credit card issuer, and the amount you deposit sets your limit on the card. You then use the card normally, borrowing and paying back funds. Your timely payments are reported to credit bureaus, which helps to build a credit history.

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Credit builder loans

These loans exist exclusively to help you build credit. First, you deposit the full amount of the loan with the lender in an interest-bearing account. Then you pay back the loan in installments. Once the loan matures and you’ve paid all your installments—usually after a period of six months to 2 years—you get the collateral back. 

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At the end of the day, you haven’t gotten any access to capital you wouldn’t have had anyway, but you’ve added to your history of responsible credit use.

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Authorized user

A spouse or family member with a better credit rating than you may choose to make you an authorized user on their credit accounts. As a result, some of their better credit rating “rubs off” and improves your own.

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How to build credit for your therapy practice

While most best practices for building and maintaining good personal credit also apply to business credit, there are a few steps specific to business credit you can take to help improve the borrowing power of your therapy practice.

Maintain good personal credit

Your personal credit score affects your ability to qualify for business credit. The best tool for building business credit early on is a healthy personal score. Treat responsible personal credit use as a duty to your business.

Open a business bank account

It’s good financial hygiene overall to keep a separate checking account exclusively for business use. A separate checking account helps ensure your personal and business activities don’t intermingle, leading to disorganized bookkeeping and potentially piercing the corporate veil.

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But it also benefits you when your business applies for credit. Lenders want to see that your finances are well-organized and follow best practices. Before you even think of applying for business credit, make sure you have a separate business checking account.

Apply for business credit cards ASAP

Even if you don’t need a business credit card to cover your practice’s expenses, apply for one as soon as you have an EIN and DUNS number. 

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A card with a low limit that you use sparingly is better for your credit history than no card at all. You can use it to start building up records of responsible credit use now, so that when you really do need access to capital—for a business expansion, for instance—you’re more likely to qualify.

Make payments early 

When it comes to the choice between keeping operating capital in your practice’s bank account or paying off credit early, it may benefit you to prioritize credit payments.

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Paying early helps to prove you’re able to manage your credit responsibly. Plus, more frequent payments can reduce the total amount of interest you pay and make your finances easier to manage.

Do your bookkeeping

Lenders want to see clean, accurate financial reports and histories when you apply for credit. You can only provide this information if your bookkeeping is up to date and properly organized. 

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Even if you have all the business credit you need for the time being, you may decide to apply for more—or apply to increase limits on your credit cards or lines of credit—in the future. Maintaining good bookkeeping practices now helps to increase your odds of qualifying later on.

Monitor your credit report

Remember, your business credit is separate from your personal credit. Even if you don’t borrow very much, keeping an eye on your credit report can help you spot errors and observe how your financial decisions impact your score.

Key takeaways

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• Lenders report your activity to credit bureaus, which in turn generate your credit report and assign a credit score.
• Once your practice has an EIN and a DUNS number, it can start building its own credit.
• Personal credit scores range from 300 to 850, with a higher score representing better creditworthiness.
• Business credit scores range from 0 to 100, with a lower score representing better creditworthiness.
• Your personal credit score impacts your business’s credit score, and bad personal credit can reduce your likelihood of qualifying for business credit.
• Having a business credit history reflects positively on your personal creditworthiness and may increase your score, but bad business credit does not typically lower it.
• To qualify for business credit early on, you may need to sign a personal guarantee.
• As soon as your business is able, start building credit immediately—the longer your credit history, the better your creditworthiness.

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Looking to lower your credit utilization? Check out How to Pay Off Debt: A Complete Guide for Therapists.

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post.

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Bryce Warnes is a West Coast writer specializing in small business finances.

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