Just because your personal credit scores are bad, that doesn’t mean you can’t build business credit. It is possible to have bad personal credit and strong business credit. In fact, a recent review of small business owners who are checking and monitoring their business credit through Nav reveals that 14% of those who have a business and have poor personal credit have excellent business credit.
Starting the process of building business credit while you are trying to build or rebuild your personal credit can be a smart move. It takes time to build credit and the sooner you start, the sooner you can see results.
So how do you go about building business credit when your personal credit scores aren’t stellar? Here’s how:
Start with Terms
A number of companies allow business owners to purchase supplies “on terms” which allows those items to be paid for later. Net-30 terms, for example, means the payment is due thirty days after the invoice, and net-60 terms means the bill is due sixty days after the invoice date. Sometimes these payment arrangements will be reported to commercial credit agencies and subsequently appear on business credit reports. When you do business with companies that report, invoices that are paid on time can provide credit references that help build business credit.
If you have strong relationships with current vendors, you can start by asking whether they offer terms. If they do, ask whether they will report those accounts to business credit bureaus. If so, ask whether it’s possible for you to arrange terms. Even if they give you only a couple of weeks to pay (say net-15 terms), you can use one of these accounts to get started.
You’ll probably find, however, that you also need to find companies that extend terms to new customers and then report those payments. By purchasing items on terms from companies offering items commonly used by businesses— such as office, janitorial or restaurant supplies— you can build good business credit. The key is to find vendors and suppliers that won’t check your personal credit before extending terms. (Nav’s free tool called BusinessLauncher provides the names of companies that report.)
As you build credit this way keep a few things in mind:
- Ideally you’ll want at least four or five accounts that appear on your business credit reports.
- Pay on time, or even early. This can help you earn a high business credit score as payment history is the most important factor in business credit scores.
- You don’t need to go into debt or carry balances to build credit. It’s perfectly fine to pay your balances in full.
Eventually, it’s a good idea to get a business credit card, which can provide another credit reference. But most card issuers evaluate those applications by reviewing the owner’s personal credit. Therefore, you may have to work on your personal credit first. Many issuers are looking for personal credit scores of at least 650 — 680, though minimum credit score requirements vary. (You can check and monitor your personal and business credit scores for free at Nav.)
There are also some lenders that do not require strong personal credit scores and provide loans, lines of credit or advances against future anticipated sales. These may provide crucial funding as you grow your business.
This article was originally written on July 6, 2017 and updated on November 12, 2020.