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How to Build Business Credit Without Using Personal Credit

Author: Adam
Published:September 14, 2022
3 mins 50 secs
How to Build Business Credit Without Using Personal Credit

Not everyone knows that personal credit and business credit are not linked. Therefore, if you have poor personal credit and want to start a business, you may be able to get business credit without using your personal credit history. 

Establishing credit for a business isn’t a complex process, although it will require planning and foresight. That said, the sooner you get started, the more time you get for establishing business credit.

The following is a guide you can use that shows you how to build business credit without using personal credit.

What is Business Credit?

Just like individuals have personal credit reports with scores, businesses also have business credit reports with scores.

The business related credit bureaus include Equifax, Dun & Bradstreet and Experian to name a few. These are the entities that keep abreast of debt, payments, and other credit-related data for businesses. 

How are business credit reports used? They are used by creditors, insurance firms, suppliers, lenders, and any organization that evaluates credit for any reason.

The Difference Between Personal and Business Credit

Business Credit

Personal Credit Process: Based on FICO Scores with These Key Factors

  • Payment History is 35% of your credit score
  • Credit Usage is 30% of your credit score
  • Credit History Length is 15% of your credit score
  • New Credit is 10% of your credit score
  • Credit Mix is 10% of your credit score
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Business Credit Process:

  • Focused on payment history, public filings, number of employees, length of time in business, etc.
  • The main credit reporting agencies are Experian, Equifax, FICO, and Dun & Bradstreet.
  • Mainly, the payment history is what has the most impact on the credit score calculations.

Another main difference is that there are specific laws and rules regarding who can gain access to personal credit reports, but anyone can look at the credit profiles of businesses. 

Here Are Steps to Getting Started Establishing Your Own Business Credit.

Business Credit

1. Set Up Your Business

Whether you already own a business or are considering opening one, you need to put yourself out there.

You need a legal business name, a business bank account, and business details like a phone number and listings in phone books and online directories. 

2. Get an EIN (Employer Identification Number) 

Your EIN can be compared to your Social Security Number, only it’s for your business, not personal purposes.

Even if you don’t plan on having employees, your EIN can be of value for opening your business checking and savings bank accounts. 

3. Apply for Vendor Credit

You can establish credit for your business first by applying for lines of credit from your vendors. Once you do that, be sure to make your payments on time.

This is the easiest way to start getting your business credit established. Trade lines of credit are highly accessible to new businesses. 

4. Apply to Get a Business Credit Card

credit-card-1040

Just like personal credit cards, business credit cards also report to the credit card bureaus. This means that even with a low line of credit, you can start establishing business credit.

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Just remember to pay your monthly payments online, or even pay it off every month. Avoid overusing the credit card and don’t let it overextend your budget.

Also, getting a business credit card may also involve checking your personal credit report.

If you have trouble getting a conventional business credit card, try for a secured credit card, since they have looser restrictions on credit scores.

5.  Keep Your Personal and Business Expenses Separate

It’s vital that you keep your personal and business expenses separate and never let them intermingle. This is not only essential for your finances and records, but also for your taxes and credit.

For instance, only use your business banking or credit cards to buy things for your business.

The clearer the separation between personal and business, the easier your business accounting process will go. 

6. Regularly Monitor Your Business Credit Reports

 Business Credit

Keep an eye on your business credit report. Be diligent in doing this so that you can find any errors on it. It’s not unusual for small businesses to find errors on their credit reports.

Take care to ensure there is nothing inaccurate on your report by filing disputes regarding inaccuracies to the credit reporting bureau(s). 

Conclusion

You should think about improving your personal credit as you are building your business credit history.

Maybe you will find yourself in a position of qualifying for better interest rates and terms for loans regarding your business if you keep both credit scores on track.

In the meantime, pay down your existing personal debt, make timely payments, and stay on top of your credit reports.