How to Build Business Credit with Bad Personal Credit
It’s a good idea to build business credit that’s separate from your personal credit profile. But there’s a catch. Business lenders may want to review your personal credit report and score when you apply for business financing.
Unfortunately, this common practice can be problematic if you have bad personal credit. The good news is that it’s still possible to build business credit with bad personal credit. You just need to follow the right strategies if you want to avoid setbacks and frustration along the way.
Does Bad Personal Credit Affect Business Credit?
Your business credit reports and personal credit reports are separate from each other. But your personal credit can still have a meaningful impact on your company’s ability to obtain financing.
Your personal credit history — bad or good — should not show up on your business credit reports. At the same time, any personal credit problems you’re struggling with could make establishing business credit a challenge.
As a small business owner, commercial lenders often see your business as an extension of you. Therefore, those lenders may want to review not just your business’s creditworthiness, but also your personal credit profile to predict the risk of loaning your company money.
A personal credit report and score that shows you’re responsible when it comes to repaying debts can work in your favor. Bad personal credit, meanwhile, may be a cause for concern.
Some business lenders, like those that issue Small Business Administration (SBA) loans, may even use a credit scoring model (called the FICO SBSS Score) that examines both your business credit and your personal credit together.
How to Build Business Credit Without Using Personal Credit
When you as an individual have bad credit, it’s best to focus on finding ways to establish business credit where personal creditworthiness isn’t a factor. In other words, you want to build business credit with lenders who won’t be concerned with your personal credit rating.
The steps below can help you build business credit when your personal credit isn’t in great shape.
Establish Your EIN
Applying for a federal Employer Identification Number, or EIN, with the IRS is one of the first steps to building a solid business credit profile. With an EIN, you’ll have the ability to apply for financing in your company’s name — separate from your personal credit profile.
To apply for an EIN, you simply need to visit the IRS website. The application is free and relatively easy to complete. So, you don’t need to pay anyone to fill it out on your behalf.
Note: You may also need to register your business in the state where it is located. And if you plan to do business in more than one state, you may need to request multiple tax ID numbers from those states as well.
Register with Dun & Bradstreet
Once your business has an EIN, it’s time to register with Dun & Bradstreet (D&B). D&B is one of the major business credit reporting agencies. Many lenders, vendors, and suppliers rely on credit reports from D&B to evaluate businesses that apply for financing.
When you register with D&B, your business will receive a DUNS Number. DUNS stands for data universal number system.
A DUNS Number is a unique, nine-digit identifier that distinguishes your business from others. Commercial lenders can use this number to access and review your D&B credit file when you apply for different types of business credit.
D&B also develops the PAYDEX® Score. Your company’s Paydex score tells other businesses how well your company has managed its debt payments in the past.
Your company can earn a PAYDEX Score between 1 and 100. Higher scores indicate that your business is more creditworthy and less likely to pay late or default on debts. If you work to earn a higher PAYDEX Score, you should find that it’s easier for your company to borrow.
Get a Business Credit Builder Loan
Finding lenders that are willing to work with your company with (a) no established business tradelines and (b) poor personal credit can be difficult.
One option you may want to consider in this situation is a business credit builder loan like the Credit Strong Business credit builder account.
The Credit Strong Business credit builder account is available to startups and established businesses alike. Once your business is at least three months old, you can apply for an account. There’s no minimum credit score requirement on either the personal or business side.
Here are the details you need to know about the credit builder account:
- A Credit Strong Business credit builder account is a hybrid between a secured installment loan and a business savings account.
- Credit Strong reports your payment history to the major business credit bureaus (Equifax Business and PayNet, and soon to Experian Business and the Small Business Financial Exchange as well).
- A portion of your monthly payment is locked inside an FDIC-insured business savings account where you can access them once the business loan is paid in full.
- You have the option to close your account at any time.
Small monthly loan payment options make the Credit Strong Business credit builder account an easy and affordable way to establish business credit. You can use the account to establish up to $10,000 of installment loan payment history over as many as 120 months.
Get Net 30, Net 60, or Net 90 Vendor Accounts
Vendor accounts can also be credit building tools for your business. And, like a credit builder account, many vendors won’t require you or your business to have good credit to qualify.
Vendor tradelines come in several different varieties, including:
- Net-30 accounts that give you the option to wait up to 30 days to pay an invoice.
- Net-60 accounts with the option to delay your invoice payment for 60 days.
- Net-90 accounts that offer 90-day payment terms.
As a new business (or a business that’s new to credit building), there are several easy-approval net-30 accounts you might want to consider.
Keep in mind that you want to search for vendor tradelines that report to at least one major business credit bureau. And if you can find vendors that report to multiple business credit bureaus, that’s even better.
Some suppliers may be willing to extend credit to you, but not report the account to the business credit bureaus. If you open that type of account it might help your cash flow figures, but it won’t do anything to build your business credit file and score.
Scan Your Business Credit Report for Errors
Credit scores, whether personal or business, are based on the data found on your credit reports. So, if you have a business credit report that contains errors, those mistakes can have an impact on your business credit score.
Business credit reporting errors can be a problem for another reason. Those inaccuracies might indicate that your company is a victim of business identity theft.
Because of these potential problems, it’s wise to review your business credit reports from all of the major commercial credit bureaus from time to time, including:
- Equifax
- Experian
- Dun & Bradstreet
- PayNet
- Small Business Financial Exchange (SBFE)
However, the business credit bureaus aren’t required to provide you with free annual copies of your credit reports (as is the case with the consumer credit reporting agencies).
It’s still possible to get copies of your business credit reports to review, of course. But you might have to pay for them. Experian, for example, provides single business credit reports for $39.95, and annual commercial credit monitoring packages for up to $1,495.
Once you download your business credit reports, it’s important to scan through them for errors and inaccuracies. If you discover mistakes, you’ll want to dispute them with the credit bureau that’s listing the incorrect items.
Always Pay On Time
Lenders use credit scores to predict the likelihood that you’ll pay your credit obligations on time. A bad business credit score tells a lender that your company is more likely to default on its debts.
As a result, you might have a hard time finding companies that are willing to loan your company money.
The most important habit you can develop when it comes to your credit score (business or personal) is to avoid late payments.
In the business credit world, some credit scoring models are based 100% on your payment history. D&B’s PAYDEX Score, for example, examines how timely you pay your credit obligations, and calculates your credit score accordingly:
D&B’s Paydex Scoring Model
| PAYDEX® Score | Average Days to Pay |
| 100 | Pays 30 Days Before Terms |
| 80 | Pays On Time |
| 60 | Pays 22 Days Late |
| 40 | Pays 60 Days Late |
| 20 | Pays 120 Days Late |
| 1-19 | Pays Over 120 Days Late |
If you want to maintain higher credit scores (and the benefits that accompany those numbers), paying on time or early is essential.
Apply for Business Credit Cards
Business credit cards can be another smart way to establish good business credit history for your company (as long as you manage the accounts wisely). But when you have bad personal credit, some business credit cards may be out of reach for now.
A premium business rewards credit card, for example, probably isn’t the best choice when you have personal credit problems. Yet a secured business credit card might be a better fit.
With a secured business credit card, you supply a deposit to the card issuer that’s equal to the credit limit on your account. Because you’re putting up collateral in the form of cash, banks may be more willing to take a risk on doing business with you.
As with any account you open with the goal of establishing business credit, there are few rules you need to follow.
- Make sure the card issuer will report the account to the business credit bureaus.
- Always pay on time or — even better — before your due date arrives.
With a business credit card, it’s also imperative that you pay attention to your credit utilization ratio. Credit utilization (the relationship between your credit card limits and balances) is another important factor that could affect your business credit score.
It’s also worth noting that some business credit card issuers will report accounts to both the consumer and business credit reporting agencies. A well-managed account might help you build both personal and business credit if it appears on both types of reports.
But you should proceed with caution because there’s a potential downside here too. A highly utilized business credit card could have a negative impact on your personal credit score if it shows up on your personal credit report.
Monitor Your Business Credit
Building business credit requires a significant investment of your time and energy. Therefore, it’s crucial to protect that investment by monitoring your business credit frequently. Checking your business credit at least once a month is ideal.
Credit Strong Business customers can take advantage of free monthly access to their Equifax Business Delinquency Financial Score grade.
There are no additional fees to access this benefit, and it’s a great way to monitor your progress as you work to build a good business credit score for your company.
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