Updated on April 19th, 2023

5 Steps on How to Build Business Credit with Bad Personal Credit

It is challenging but not impossible to build business credit if an entrepreneur has bad personal credit. A good credit score can set a business up for success. Even if a business owner has a poor personal credit score, he or she should still try to build up their company’s credit score.

Brad Nakase, Attorney

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Example of needing to build credit

As the owner of a skateboard company, Shawn knows how important it is to have good business credit. However, Shawn is concerned that his own personal credit may negatively impact his business. In the past, he unwisely used his credit card to make expensive purchases. He then failed to pay back those loans on time. As a result, he has a bad credit score. He wonders how to build business credit while having this personal problem, and whether it is even possible.

How Is Business Credit Different Than Personal Credit?

Good business credit is very important because an entrepreneur will find it easier to receive financing with lower interest rates and better terms. It is also possible to secure better deals with suppliers and venders with a good credit score. Also, there is the benefit that strong business credit can protect one’s personal credit score.

If a business owner has poor personal credit, he or she should feel assured that they can still build business credit. It will be a challenging process, but it is possible.

A small business owner will have both business credit and personal credit. A FICO personal credit score is determined based on five elements:

  • An individual’s payment history
  • Credit utilization
  • Length of credit history
  • Credit mix
  • New credit

Business credit works quite differently than personal credit history. This type of credit looks at how long the business has been running, as well as the business’ payment history. Business credit will also examine the company’s history with Dun & Bradstreet, Equifax, Experian, and FICO.

How Can a Company Build Business Credit?

It is common for a new business owner to focus on establishing a business credit history. The following are some tips to help build business credit, even for those individuals whose personal finances are not the best:

1. Register an EIN

If a small business owner does not yet have an Employer Identification Number (EIN), they should establish one. An EIN number can offer a different way to apply for business credit lines.

It is also possible to open a business and savings account using an EIN. Beyond registering an EUN, it is a good idea to have a physical address and separate phone line to lend a business legitimacy.

It is also wise to open a business bank account that is only used for business expenses. Combining business and personal expenses can make accounting difficult.

2. Sign Up with Dun & Bradstreet

Dun & Bradstreet is a credit reporting agency that offers reports on businesses, as well as information on business credit. It is possible to apply for a nine-digit D-U-N-S number for free. This will enable a company to start building business credit immediately.

3. Use a Business Credit Card

A business credit card allows a company to establish a business credit history. It is important, however, to pay off credit card bills on time or even early. This way, the credit card company may report good behavior to the credit bureaus, thereby maintaining a high credit score.

To get approved for a business credit card, a business owner may need to undergo a personal credit check and have a personal guarantee. If a business owner does not qualify for a traditional business credit card, he or she may apply for a secured or retail card at a store the business regularly uses.

4. Apply for a Working Capital Loan

If a business owner does not have the best personal credit score, then he or she may want to apply for a working capital loan. This type of loan can help an owner finance his or her day-to-day operations and cover short-term financial requirements.

Making timely payments can help increase a business’ credit score.

5. Check Business Credit Reports Regularly

It is wise to closely monitor business credit reports to ensure that the business is in good financial standing. It is also possible that a business owner may catch errors when reviewing statements, and a simple mistake can seriously damage one’s score. In this way, regular monitoring can save a lot of hassle.

A poor business credit score can make it hard for a business to get additional funding. In fact, it can make lenders not want to work with a business, because they are not sure if they will be paid back. It is therefore important that a business owner constantly try to improve a poor credit score.

How Can a Business Owner Improve a Personal Credit Score?

The better one’s personal credit score, the more likely one is to be approved for a business loan. A good personal credit score also allows a business owner to avoid high interest and insurance rates. The following are some methods by which one can strengthen personal credit:

Make Payments On-Time or Early

One of the major factors that impact credit score is payment history. Therefore, it is essential that a business owner pays personal bills on time. A single missed payment can negatively impact one’s credit score, and this can be difficult to build back up.

If an individual is concerned about forgetting or missing payments, he or she can enroll in automatic payment systems. One may also set reminders on one’s phone. By making payments part of one’s monthly routine, one will never risk missing payments.

Check Credit Regularly

An individual may visit AnnualCreditReport.com to check their personal credit score once a year for free. It is important to review credit scores often to look for mistakes or errors. If a person identifies any inaccuracies, he or she should be sure to file a dispute as soon as possible to fix the issue. This will prevent there being any negative impact on one’s credit score.

Keep Credit Balances Low

It is recommended that an individual keep his or her credit card balances to no greater than 30% of the available limit. For instance, if an individual has a business credit card with a $3,000 limit, he or she should be sure not to go above $1,000.

Apply for Credit Only When Necessary

While it is tempting to apply for new credit whenever one wants to make a new purchase, this is inadvisable. This action can negatively impact one’s credit score, so it is recommended to only apply for credit accounts when absolutely necessary. Overspending can lead to a lower score, so credit should not be used to fund a lifestyle.

What Is a Good Business Credit Score?

Lenders will have different requirements when it comes to a good credit score. Generally, lenders will approve business credit scores of 75 or higher. Some lenders may be more lenient, especially if the business is relatively young.

A business owner can always study a lender’s website to determine the credit score needed to obtain a loan. It is also possible to get pre-approved before beginning the formal application process.

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