How To Build Business Credit With Bad Personal Credit

Building your business credit history is possible even if you have a bad personal credit score.

To build your business credit, you should establish your business as a separate entity, including a limited liability company (LLC) or partnership. Then, you should explore options to build your business credit profile, such as using business credit cards and trade credit.

But while the steps might be simple, they’re not always easy or quick to implement. Let’s explore how to build business credit with bad personal credit to help open up more financial opportunities for your business.

Key takeaways

• You don’t need a good personal credit score to build your business credit history. However, it could still help you get approved for more business credit products since lenders might also check your personal credit history during the application process.
• Secured business credit cards often have less strict personal credit score requirements.
• Establishing trade credit or tradelines with vendors and making on-time payments could help build your business credit history if these vendors report payments to business credit bureaus.

How to build business credit with bad personal credit

Follow these five steps to help build your business credit history if you have a poor personal credit score.

1. Check your personal credit reports and dispute any errors

Even though you want to establish a business credit file and improve your business credit score, it’s still important to fix any errors on your personal credit file.

You might think you have a bad personal credit score, but there’s always a chance your score was generated using incorrect information. In other words, it’s worth checking your credit reports to make sure everything is in order, including the number of active credit accounts, whether you’ve closed any accounts, and the accuracy of your payment history.

You can dispute any errors which might change your credit score depending on the outcome of the dispute. If your credit score sees a positive change, it might help you qualify for more credit products.

You can request free copies of your credit reports from the three major credit bureaus at AnnualCreditReport.com. If you find any errors, you can file a dispute for free with the applicable credit reporting agencies, including Experian, Equifax, or TransUnion.

2. Establish a business

If you haven’t already done so, consider establishing your business with a structure that typically helps separate your business credit history from your personal credit history.

Common business structures that can help you create a separate business entity include:

• Limited liability company (LLC)
• Partnership
• Corporation

Learn more about business structures.

Sole proprietorships are another common business structure, but they don’t create a separate business entity.

If you want to create further separation between your business and your personal life, consider using a business credit card and business bank account for all your business expenses. These are easy ways to separate business and personal expenses, which could help simplify the process of doing your taxes when submitting them to the IRS.

3. Use trade credit

Trade credit, sometimes called a tradeline, is a form of credit that a company or vendor agrees to extend to your business when it provides goods or services that you pay for later.

This could be useful for building your business credit history because on-time trade credit payments can be reported to the major business credit bureaus depending on the vendor. Some vendors report payment activity to one or multiple credit bureaus, while others don’t report the payments at all.

4. Apply for a secured business credit card

Credit cards are an excellent tool for building your personal credit history. Similarly, business credit cards could help you build your business credit history.

But credit cards can be a bit puzzling since you often need a good credit score, along with other creditworthiness factors, to improve your chances of qualifying for credit cards. But if you don’t already have a credit history, how can you get approved for a credit card?

Fortunately, secured credit cards exist. These cards typically have less strict credit requirements, and in some cases, they might not require a personal credit check or no credit history.

Even better, secured cards tend to report responsible credit usage, such as making on-time payments, to major credit bureaus.

Small business owners with bad personal credit might find the card they need in our list of the best secured business credit cards.

5. Use business credit responsibly

Business credit cards could help build your business credit history, but only if you use them responsibly. This means using your credit card to make eligible purchases and then making on-time payments toward your credit card balance.

Late and missed credit card payments can have a large negative impact on your credit score, as well as incurring late fees.

If you’ve had trouble qualifying for credit cards because of your credit history, check out the best business credit cards for bad credit.

Our recommended secured business credit cards

Consider these secured business credit cards that we recommend for small business owners working on building their business credit history:

You can also consider a credit card such as the OpenSky^® Secured Visa^® Credit Card, which has a $35 annual fee. Keep in mind that the OpenSky Secured Visa Credit Card is a personal credit card, not a business card.

However, using a consumer secured credit card could help you build your personal credit history, which could help you qualify for more business credit products.

What is a good business credit score?

A good business credit score is a score that similarly falls within a range to what you might expect for good personal credit scores but with different numbers.

Whether a business credit score is good depends on the scoring system you’re using, which can vary depending on the business credit bureau and applicable business credit report.

Here are a few examples from the three major business credit bureaus:

Note that these aren’t the only types of business credit scores available and the factors that determine these scores can vary between credit bureaus.

In general, a business credit score could be generated based on information regarding any or all of the following factors:

• Credit history, such as past payment history and credit utilization trends
• Public record information, such as liens or bankruptcies
• Business size
• How many years you’ve been in business
• Business cash flow

FAQ about building business credit

Can I build business credit with bad personal credit?

Your business and personal credit histories are separate, so it’s possible to build your business credit file even if you have a bad personal credit score. You might be able to build your business credit by getting approved for a secured business credit card or establishing tradelines with vendors. Maintaining on-time payments is essential to build positive credit history through both options.

Does bad business credit affect getting a business loan?

A low business credit score might negatively impact your chances of getting approved for a business loan, line of credit, or other business financing. But that doesn’t mean you’ll be automatically denied since lenders could also check your personal credit history, how long you’ve been in business, and your annual business revenue.

Does my personal credit affect my LLC?

A limited liability company (LLC) is a business entity that helps separate your business from your personal credit history, so your personal credit decisions typically shouldn’t have much impact on your LLC. However, lenders might check your personal credit history if you apply for business credit, especially if you have a startup or when your business is new or doesn’t have an established business credit history.

Building business credit with bad personal credit: bottom line

You can still build business credit even if you have a bad personal credit score. You just might have to follow steps that don’t require a good personal credit history. This could include applying for a secured small business credit card or using tradelines through your vendors.

It also makes sense to select a business structure that helps separate your business credit from your personal credit, such as an LLC, partnership, or corporation.

To see our top recommended cards for small business owners, check out the best business credit cards.

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