Advice on How to Build Business Credit with Low Personal Credit Score

If you are confused about building business credit, don’t worry. You are not the only one. Many entrepreneurs and business owners are not aware of the major distinctions between a business and personal credit.

Business and personal credit contains various information, so they are not always correlated. Yet, if you are a sole proprietor, lenders will probably reference your personal credit to ensure that you are able to manage debt.

Before giving business credit, lenders often evaluate your personal credit. If people sign a personal guarantee when opening a business card or borrowing money through a business loan, their personal credit will probably be checked. Such a guarantee assures that you are the one to be liable for debts. Better avoid such situations in order not to risk your personal assets.

In certain cases, these two credit kinds may be related. When growing your business, you can take measures to separate them.

It Will Take Time to Build Credit

Even if you are not going to tap a line of credit or take out a loan, building business credit can be useful for you. It can influence your office lease agreements, insurance premiums, cooperation with other companies, and vendors’ terms.

The good news is that you can take measures to build business credit despite the low personal credit that typically allows you to get a secured personal loan only. After having established a solid business credit, you may get financing without a personal guarantee. The measures to take are:

  • Incorporating your business;
  • looking for errors in credit reports;
  • establishing trade lines;
  • making timely repayments;
  • working on personal credit.

1. Establish and Incorporate Your Business

Before making a credit report for you business, the credit bureaus should be aware of it.

To build credit, you may take the following steps:

  • Form an LLC or incorporate your business. It will separate your business entity from personal identity.
  • Open saving and checking business accounts. Ensure that every business banking account has your legal business name.

2. Look for Errors in Credit Reports

Business credit reporting agencies collect data from different sources. A business credit report may include:

  • the contact information of your company;
  • an overview of the industry, number of employees, key personnel, branches and subsidiaries, years and business and sales.

 3. Establish Trade Lines

Trade lines can be important because your business credit reports can contain a lot of information.

Business trade lines are credit lines that are established between a vendor and a business. For instance, an office supply company can let the business pay the account balance a couple of days or weeks after getting the equipment.

Be aware that credit reporting agencies will know about your payment activity from your vendors. Even if you make timely repayments, it doesn’t mean you build your credit.

4. Make Timely Repayments

Your business credit score is largely affected but your payment history with lenders, vendors, and credit card issuers. Making timely payments is important for both business and personal accounts.

If you delayed in just a couple of days, late payments will have a bad influence on your business credit report.

5. Continue Improving your Personal Credit

Let’s admit that it is slightly confusing to understand the difference between these two credit types.

Business and personal credit reports rely upon various data and cannot be 100% identical.

On the other hand, business credit scores often rely on blended information that integrates the personal credit of the business owner.

It is a good idea to look at your personal credit if you are just starting out or a sole proprietor. If you are in need of a loan and your personal credit is still low, you can try the Personal Money Service bad credit loans option to find the most appropriate solution.

Bottom Line

Your personal credit can go down because of some reasons, but don’t let it hurt your business.

Begin building your business credit right now to have it established when needed. Even if you’re not going to take out a loan, remember that business is an unpredictable thing.

Leave a Reply

Your email address will not be published. Required fields are marked *