How Do I Build Business Credit With Bad Personal Credit?

Leverage Corporate Credit Cards

One of the best ways to build business credit is to use corporate credit cards. These cards aren't tied to your personal credit, so you can get them easily. Some lenders do look at your personal credit, but you can apply for a secured card. You'll have to give a deposit of about $500 to issue this card. It's a form of revolving credit.

As long as you make timely payments, your business will gradually build credit. Later, you can apply for bigger loans or better credit cards.

Enhance Credibility with Trade References

Trade references can significantly enhance a business's credibility, even with bad personal credit. By proactively seeking references from suppliers, clients, or other business partners, a business owner can establish a positive credit history based on their payment reliability. These references serve as testimonials to the business's creditworthiness, allowing them to build trust and credibility with potential lenders or creditors.

For example, if a business consistently pays invoices on time, they can request their suppliers to provide positive references regarding their payment history. These references can then be shared with future creditors, showcasing the business's commitment to timely payments.

While trade references may not directly impact traditional credit scoring, they play a crucial role in building relationships and establishing trust, which can indirectly improve access to credit for a business owner with bad personal credit.

Establish Distinct Business Financial Identity

Establishing a distinct legal entity for your business, such as a limited liability company (LLC) or corporation, is one effective method. This establishes a distinct financial identity for your business, allowing you to establish credit independently of your personal credit.

Open a business bank account and obtain a business credit card to establish business credit. Maintain a low credit utilization ratio and make on-time payments to demonstrate responsible financial management.

In addition, establish relationships with vendors and suppliers whose payment histories are reported to business credit bureaus. Paying bills on time will have a positive effect on your business credit.

Obtaining a business line of credit or small business loan from lenders who specialize in working with businesses with poor credit is another helpful strategy. Over time, making prompt payments on these credit accounts can enhance the creditworthiness of your business.

Prioritize Responsible Financial Management

It's all about showing lenders that you're responsible and proactive when it comes to managing your business's finances. Start by setting clear goals to improve your business credit score. It tells lenders that you're serious about building a strong credit profile.

Next, make sure you have a budget that prioritizes paying off debts on time. By consistently meeting your financial obligations, you establish a solid track record of responsible financial management. And don't forget to allocate resources specifically for building your business credit—it's an investment in your future financial success.

Offer Trade Credit

One potential approach for a business owner with bad personal credit to build business credit is to offer trade credit to other businesses in exchange for goods or services.

This approach can help demonstrate creditworthiness and establish relationships with other business owners, which can be valuable in the long term. It's important to carefully manage trade credit agreements to ensure that they are mutually beneficial and don't put undue strain on the business's cash flow.

For example, a startup bakery with bad personal credit might offer trade credit to a local coffee shop in exchange for purchasing ingredients and supplies from the coffee shop. Over time, if the bakery consistently makes on-time payments for the trade credit, this can help establish a positive credit history for the bakery.

Partner with Credit-Reporting Suppliers

One way for a business owner with bad personal credit to build business credit is by working with suppliers who report payment history to credit bureaus. Prioritizing suppliers who report to credit bureaus can help the owner take advantage of credit-building opportunities and establish relationships with reputable lenders.

For example, a business owner who buys inventory on credit can ensure that the supplier reports payments to credit bureaus. Consistent on-time payments can help the business build credit over time.

Utilize Business Partnerships and SBA Loans

One of the best ways to build business credit is to partner with another business. You can refer customers to one another, and in turn, both of your companies will begin to build a credit history.

You can then use this business credit to secure larger contracts or to open up new lines of credit, which will then help to build your business’s credit even further. Starting with an SBA loan can be a great way to get your business off the ground, while also helping to build your business credit.