A good business credit score does not just strengthen your financial standing and help you qualify for loans for growth and expansion. It can also lead to better interest rates, higher credit limits, and improved relationships with vendors and suppliers.

While personal and business credit are distinct, lenders often assess your personal creditworthiness, especially when your business is new or lacks an established credit history.  They want to see how well you handle debt and manage your finances.

So, a poor personal credit score can make it harder to secure business loans or credit lines; it can also lead to higher interest rates or smaller loan amounts.

But, building business credit with poor personal credit is entirely possible. It requires a strategic approach, but it's achievable.

Here in this post, we will walk you through the steps you can take to establish a strong business credit profile with bad personal credit: 

Step 1: Incorporate Your Business or Form an LLC

The first step to building business credit with poor personal credit is to legally separate your business from yourself. This means formally registering your business as a separate legal entity (LLC, S-Corp, or C-Corp).

Why does this matter? 

Because it creates a clear distinction between your personal and business finances. Lenders and credit bureaus will see your business as a separate entity, which means your personal credit won’t be the sole factor in determining your business’s creditworthiness. It will also reduce personal liability if you default on a business loan in the future.

Step 2: Get an Employer Identification Number (EIN)

The next step is to get an Employer Identification Number (EIN) from the IRS, which further separates your personal and business finances. 

Think of an EIN as a Social Security number for your business. It’s free to apply, and you can do it online in just a few minutes.

Your company will need an EIN for:

• Opening a business bank account

• Applying for business credit

• Filing taxes

Step 3: Open a Business Bank Account

This is a non-negotiable step in building business credit with bad personal credit.

A dedicated business bank account helps distinguish your business funds from your personal funds, which is essential for lenders and the IRS. It also helps demonstrate to lenders and credit bureaus that your business is legitimate.

To open an account, you'll typically need

• An EIN

• A government-issued photo ID

• Proof of your business's existence

• The names of the account owners

Make sure to use this account for all business-related transactions. 

Pay your business expenses from this account, deposit business income into it, and avoid mixing personal and business funds. 

This separation is necessary for building a strong financial foundation for your business.

Step 4: Register for a D-U-N-S Number

It is a unique 9-digit identifier from D&B that helps track your company's identity and credit. Lenders and suppliers use this number when evaluating your company’s creditworthiness.

You can apply for a D-U-N-S number on the Dun & Bradstreet website to start building your business credit profile.

A DUNS number is required to apply for federal grants.

Step 5: Establish Trade Lines with Vendors and Suppliers

Trade lines are lines of credit established with vendors or suppliers that allow your company to purchase goods or services and pay them back later.

They're important because:

• Trade lines of credit are easier to obtain than loans or credit cards and can help you build business credit even when derogatory items have dragged your personal credit score down.

• Many vendors and suppliers report payment history to business credit bureaus; be sure to establish accounts with vendors or suppliers who report to business credit bureaus like Dun & Bradstreet, Experian, and Equifax.

• When you pay your invoices on time, these vendors will report your payment behavior to credit bureaus which in turn will help you build a positive business credit history.

You can start by reaching out to vendors and suppliers you already work with and ask if they offer net-30 terms (payment due in 30 days). If they do, make small purchases and pay the bills on time or early. Over time, this positive payment activity will be reflected in your business credit history.

Step 6: Apply for a Secured Business Credit Card

Secure business credit cards are backed by a cash deposit as collateral; this cash deposit also acts as your credit limit. Look for cards designed for businesses with limited or no credit history. Some cards may require a personal guarantee, but they can still help you establish and build business credit.

Use the card responsibly. Make small purchases and pay off the balance in full each month. On-time payments can have a positive impact on your business credit score because it demonstrates to lenders that you can manage credit responsibly.  

If you default on payments, your cash deposit will be forfeited and you won’t be able to improve your business credit score. A missing payment can also result in a derogatory mark on your business credit report.

Step 7: Take Out a Revenue-Based Loan or Leverage Business Assets

You may consider revenue-based financing to build business credit, where lenders provide capital in exchange for a percentage of your gross revenues. This approach depends more on revenue than credit scores.

You can also use business assets like equipment or inventory as collateral to secure loans. If you default, the lender can sell the collateral to settle the debt.

Step 8: Monitor Your Business Credit Reports

The three major business credit bureaus—Dun & Bradstreet, Experian Business, and Equifax Business—each maintain their own credit files for businesses.

Develop the habit of regularly monitoring your business credit reports. This will help you track your progress and identify areas where you can improve.

The bank where you opened your business account may provide business credit reports for free. Alternatively, you can always check your credit score with Dun & Bradstreet for free. Experian will let you view your business credit report for a small fee.

Make sure to review your reports for accuracy and dispute any errors you find by filing a 609 dispute letter. You may notice an improvement in your business credit score if you succeed in removing any errors or inaccurate derogatory items.

Step 9: Pay Your Bills on Time

This might sound like a no-brainer, but it’s worth emphasizing: paying your bills on time is one of the most important factors in building business credit with poor personal credit. 

Late payments against a vendor invoice, a business credit card payment, or a loan installment, can hurt your business credit score and make it harder to secure financing in the future.

Set up reminders or automatic payments to ensure you never miss a due date. 

Final Words

A good business credit score does more than just help you qualify for loans. It can also lead to better interest rates, higher credit limits, and improved relationships with vendors and suppliers. 

Plus, it separates your personal finances from your business finances, which protects your personal assets and builds credibility for your company.

For new businesses, building business credit is particularly important because it reduces reliance on your personal credit history. 

Over time, as your business credit grows, lenders will focus more on your company’s financial health than your personal credit score. This shift can open doors to opportunities that might otherwise be out of reach.

Frequently Asked Questions 

1. How can I ensure I'm building my business credit effectively?

Make all payments on time, or even early, as some business credit scores, like Dun & Bradstreet's Paydex score, reward early payments. Keep your credit utilization low (below 30% of your credit limit) on business credit cards. Regularly monitor your business credit reports to identify errors or inaccuracies and dispute them promptly.

2. Is it possible to get a business credit card without a personal credit check?

Yes, it is possible. Corporate cards focus on the business's financial health, such as revenue and cash flow, rather than the owner's personal credit score. Secured business credit cards also tend to have less stringent personal credit requirements.

3. What should I do if I find errors on my business credit report?

If you spot inaccuracies on your business credit report, contact the relevant credit bureau immediately to dispute the errors. Provide documentation supporting your claim. 

4. How long does it take to build business credit when I have poor personal credit?

While the timeline varies, it typically takes around 12 months of consistent effort to establish a solid business credit history. Using business credit cards responsibly and maintaining timely payments can expedite the process.