How To Build Business Credit With Bad Personal Credit

Bad Personal Credit

By John Tejada

If you’re wondering how to get business credit without using personal credit, you’ve come to the right place. AMP ADVANCE has the insider tips to help you get it done! But we’re not going to lie, it’s a challenge that will take your focus and energy to do it right. Today, we will explain how to build business credit without personal credit.

First, there is a lot of different factors that play into scaling and growing a business. A sturdy business plan and steady cash flow play a big role but as you will learn, so does business credit history. When you go to a lender, they will evaluate your business credit to determine whether you’re eligible or not.

Additionally, it shows potential investors, business partners, and vendors how responsible you are about your business finances. For these reasons, establishing good business credit is a must!

If you want to separate your personal credit from your business, and start growing your business credit follow these first steps:

  • Get your EIN.
  • Open a business checking account at a major bank.
  • Register with Dunn & Bradstreet.
  • Apply for vendor trade lines.
  • Think about getting a secured business card.
  • Give working capital loans a try.
  • Regularly check your business credit report for inaccuracies and positive payment reports.

We will explain each of these steps in more detail later, so keep reading! First, we would like to establish the difference between business and personal credit.

The Difference Between Business Credit and Personal Credit

Both business credit and personal credit measure how you manage your financial responsibilities. However, they show this in very different ways, which means they offer different perspectives.

For instance, FICO personal credit scores consider these key factors:

  • Payment history, which is 35% of your credit score.
  • Credit usage, which is 30% of your credit score.
  • Credit history length, which is 15% of your credit score.
  • Credit mix and new credit, each of which represent 10% of your credit score.

Business credit is calculated very differently by focusing on factors such as payment history, time in business, number of employees, and public filings. Information relating to business credit is collected by 4 main reporting agencies, including FICO, Dun & Bradstreet, Experian, and Equifax.

When it comes to business credit calculations, the most important factor is payment history. They rely a lot more on this factor than personal credit. Another important factor is business longevity. The longer you’ve been in business and the more payments you’ve made on time, the better.

Not everyone can get their hands on your personal credit report, but that’s not true for business credit reports. Anyone can access them, so your lender will check it out when they’re considering your application. At the end of the day, it can make or break your chances of getting a loan. Customers can also access this info, so that’s yet another good reason for building up your business credit.

What Is Business Credit Based On?

If you want to learn how to build business credit with poor personal credit, you need to understand what it’s based on. Though business credit and personal credit are two separate things, your personal credit score can greatly impact business lending decisions. That’s particularly true if your business is brand new.

Companies that have small ownership and limited credit history may need to agree to a personal guarantee. That means that when you’re applying for a loan or business financing, you’re making yourself responsible if you happen to default on it.

In other words, you are personally liable for the debts of your business. Should you default on a credit line or loan, the related delinquency will be applied to your personal credit history. This is an alternative to collateral.

If you are the sole proprietor of your business, your business and personal credit will intertwine. That means that, for financial purposes, you and your business are a single entity. As such, potential lenders will rely more on your personal credit to determine if you’re eligible for a business loan. So, it’s best to open an entity to separate your personal credit.

How to Build Business Credit Without Personal Credit

Now, this is the big question. The truth is that having bad personal credit can make it more difficult for you to build good business credit. However, that doesn’t mean it’s impossible. Here’s how to establish business credit without using personal credit:

1. Get Your EIN

If you’re wondering how to apply for business credit without using personal credit, you’ll need an EIN. Your Employer Identification Number gives you an alternative and it’s like a Social Security number for your business. Your EIN can also be used to open business savings and checking accounts. If you’re building business credit with bad personal credit, you need it.

2. Open a business bank account 

Not only will opening a business bank account help you separate your personal finances with your business for tax purposes, but it will also establish a relationship with a major bank for your business future. More on this later.

3. Register with Dunn & Bradstreet

There are several business credit bureaus, one of the most popular is Dun & Bradstreet, so make sure to register right away. You’ll have to apply for a D-U-N-S number to create your business credit profile. Don’t worry, it’s free and you can set it all up online, click here! This is a must for getting business credit with bad personal credit.

4. Apply for Vendor Trade Lines

Setting up trade lines with vendors can be of tremendous help. Particularly if your business is just kicking off the ground and has no business credit scores. This is the best credit option for small businesses, and you’ll be able to get it even if your personal credit is bad. Just make sure you pay your invoices on time since they are reported to the business credit bureaus monthly.

Check out the best 3 starting tradelines for small businesses below:

  1. Nav.com– Monitor and build business credit at the same time with business boost for $39.99/m. Payments get reported to Experian, Equifax and Dunn & Bradstreet credit bureaus. Think of Nav like CreditKarma or similar credit monitoring apps, but for Business!
  2. Shirtsy.com– Provides all of your print on demand promotional and apparel products on net 30 day terms. Create business cards, company t-shirts or just company coffee mugs all in one place! They report to Dun & Bradstreet, Experian, Equifax, CreditSafe, SBFE, Ansonia and NACM. There is no personal credit check. Shirtsy’s Net 30 Membership comes with an annual fee of $99 to report to the bureaus.
  3. Maverick Office Supplies All of your office supply and marketing needs in one place! Buy now and pay later with net 30 terms. Reports monthly to Dun & Bradstreet, Equifax Business & Creditsafe with credit limits up to $10,000. Will soon be reporting to Experian in 1Q 2022!

5. Think About Getting a Secured Business Card

Remember that business checking account with a major bank? Major banks like Wells Fargo offer secured business credit cards to help build your business credit. This is a great choice if you can’t get a business credit card due to your poor personal credit and is a great plan B. You will have to make a cash deposit to secure your credit line though. Most business secured credit cards do report to certain bureaus, so make sure to ask which they report to before opening an account.

6. Give Working Capital Loans a Try

When it comes to building business credit, taking small working capital loans can help a lot. Of course, this is only an option if you can make the payments on time. AMP ADVANCE has a great variety of online loan options that will provide working capital even if you have bad personal credit and often times these options do report to business credit bureaus.

7. Regularly Check Your Business Credit Report

Once you establish credit, one of the most important things you need to do is regularly check your business credit report. It doesn’t matter how thin it is at the moment. You have to make sure there aren’t any inaccuracies or mistakes. Not to mention, you need to check that your credit accounts are getting reported. This is very important, otherwise, your credit rating will be affected or stall your process.

Final Words

Though it’s possible to build your business credit with bad personal credit, you should still try to improve it. That way, you’ll qualify for better loan terms and rates. If you have been declined by your bank for working capital think when banks say no, AMP Advance says YES!

About the Author 

JohnJohn Tejada is a senior contributing writer and CEO at AMP ADVANCE. John specializes in small business finance, credit and helping businesses owners navigate complicated concepts and decisions. Since earning his degree from the Florida International University, he has spent half a decade writing on small business financing.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.