June 01, 2022

How to Build Business Credit If You Have Bad Personal Credit

Business credit is essential for several reasons. You’ll find it easier to obtain financing with lower interest rates and more favorable terms with a good business credit score. You can also land better deals with vendors and suppliers. In addition, strong business credit may protect your personal credit score.

If you have bad personal credit, rest assured that you can still build business credit. Although it may be challenging, it’s certainly possible.

This blog post will explain how to build your business’s credit profile despite a poor personal credit score. We’ll also explain why having strong personal and business credit scores can benefit your company’s future.

Is Your Business Credit Different From Personal Credit?

If you’re a small business owner, you have business credit and personal credit. Your FICO personal credit score is based on five factors:

  • Your payment history
  • Credit utilization
  • Length of credit history
  • Credit mix
  • New credit

Business credit, however, works differently from personal credit history. It considers how long you’ve been in business and your business payment history. Business credit also looks at your history with Dun & Bradstreet, Equifax, Experian, and FICO.

How to Build Business Credit:

If you’re a new business owner and want to focus on establishing your business credit history, you’ve come to the right place. Here are some tips on building business credit, even if your personal finances aren’t steady.

1. Establish an EIN

If you don’t have a Employer Identification Number (EIN), it’s time to establish one. It can give you an alternative way to apply for business credit lines.

You can also open a business and savings account with an EIN. In addition to an EIN, it’s a good idea to establish a physical address and separate phone line to legitimize your business entity.

We also suggest opening a business bank account and only using it for business expenses; combining business and personal costs can make accounting methods challenging.

2. Sign Up with Dun & Bradstreet

Dun & Bradstreet is a credit reporting agency that provides information on business credit and reports on businesses. You can apply for your nine-digit D-U-N-S number for free to start building business credit right away.

3. Use a Business Credit Card

With a business credit card, you can establish your business credit history. Just make sure that you pay your credit card bills on time or early so that the credit card company will report positive behavior to the credit bureaus.

Note that you may need a personal credit check and personal guarantee to get approved for a business credit card. If you don’t qualify for a traditional business credit card, opt for a secured or retail credit card at a store your business frequents.

4. Apply for a Working Capital Loan

Some business loans are easier to obtain than others. For example, a working capital loan may be a viable option if you don’t have the best personal credit. It can help you finance your day-to-day operations and cover your short-term financial needs.

You’ll find that your business credit score will increase by making timely payments. Plus, you’ll still have access to ample cash flow to grow your business.

5. Check Your Business Credit Reports Often

It’s essential to keep a close eye on your business credit reports to stay up-to-date on where your business’s credit stands. You may also catch errors and inaccuracies that take a serious toll on your credit.

If you have a bad business credit score, it can be challenging for you to get approved for additional financing and may deter lenders from working with you. Therefore, you should work to improve it should you find that your score is poor.

How to Improve Your Personal Credit Score:

If you improve your personal credit score, you’re more likely to get approved for business loans and avoid higher interest and insurance rates. Some of the best ways to strengthen your personal credit include:

1. Make Payments on Time

Since payment history plays a significant role in your personal credit score, it’s essential to pay your bills on time. Even one missed payment can affect your credit score, and it can be challenging to reverse.

If you’re worried about missing payments, enroll in automatic payments or set calendar reminders on your phone. That way, paying your bills on time will become a part of your monthly routine, and you won’t risk late payments.

2. Check Your Credit Regularly

You can go to AnnualCreditReport.com to check your personal credit reports for free once a year. Review them often and search for errors or inaccuracies; if you find any discrepancies, file disputes as soon as possible to resolve them.

3. Keep Credit Balances Low

Financial experts recommend keeping your credit card balances to no more than 30% of your available limit. For example, if you have a business credit card with a $3,000 limit, make sure it doesn’t exceed $1,000.

4. Only Apply for Credit When You Need To

It can be tempting to apply for new credit whenever you want to buy something. Since this can hinder your credit score, only apply for credit accounts when you absolutely need to. Don’t rely on credit to fund your lifestyle because overspending will lead to a lower score.

What is a Good Business Credit Score?

Every lender has its own criteria for what they consider good business credit. In most cases, however, lenders prefer business credit scores higher than 75. Some lenders may have more lenient requirements, especially for startups or newer businesses.

Check out the lender’s website if you’re unsure what credit score you need to obtain a business loan. You may also get pre-approved and find out if you’re eligible before going through the formal application process.

Conclusion: You Can Build Business Credit with Bad Personal Credit

A good business credit score can put your business on the path to success. That’s why it’s essential to build it, even if you have a bad personal credit score that you’re also trying to increase.

Once you’ve improved your business credit score, make every effort to maintain it. By doing so, you can save thousands upon thousands of dollars over the lifespan of your business.

Editor’s Note: This post was updated for accuracy and comprehensiveness in June 2022.

Since 2008, Fora Financial has distributed $3 billion to 35,000 businesses. Click here or call (877) 419-3568 for more information on how Fora Financial's working capital solutions can help your business thrive.