How to Build Business Credit with Bad Personal Credit Having bad personal credit, admittedly, doesn't make it easy to build business credit. But it can certainly be done with the right approach. Here are some specific strategies on how...

Having bad personal credit, admittedly, doesn't make it easy to build business credit. But it can certainly be done with the right approach.

Here are some specific strategies on how to build business credit with bad personal credit to make yourself a more attractive borrower.

Establish Your EIN

A good starting point is to establish an Employee Identification Number (EIN).

This is a nine-digit number that's assigned by the IRS to businesses operating within the United States and the US Territories.

An EIN is used for multiple purposes, including "filing company tax returns, opening a business bank account, applying for licenses and permits, and applying for business credit," the Small Business Administration explains.

It's helpful to have an EIN because it gives you another means of attaining business credit lines, and you can open a business bank account with it rather than using your personal information.

An EIN kills two birds with one stone because it will help get your small business off the ground and also serves as a workaround for bad credit.

So if you haven't established one yet, now is the perfect time to do so. You can find all the information you need for applying for an EIN here.

Register with Dun & Bradstreet

While the three major credit bureaus for reporting personal credit information are Equifax, Experian, and TransUnion, it's a little different for business credit.

Information is still reported to Equifax and Experian. But, instead of TransUnion, the other main credit bureau it's reported to is Dun & Bradstreet, among others.

Another critical part of establishing business credit is registering with Dun & Bradstreet where you apply for a Data Universal Number System (DUNS) number.

It's free and easy to do and can be done via the Dun & Bradstreet website here.

Simply complete the four basic steps, and after your information is validated, you'll receive your nine-digit DUNS Number.

Once you have it, lenders and credit agencies will use it to verify your legal status as a small business owner from the Dun & Bradstreet Database and assess your credit profile.

This, along with setting up a business bank account, is integral to "legitimizing" your business. It also should unlock opportunities for partnering with other companies and put you on your way to building business credit.

In turn, it should increase your odds of being approved for a small business loan, business line, credit line, and other forms of business financing. This brings us to our next point.

Apply for Tradelines with Your Vendors

Tradelines can be helpful to most small business owners. But they can be especially helpful for newer business owners who are just getting started and need to get some credit under their belt.

Even with bad credit, vendor tradelines should be a feasible way to start generating some trade credit, which can get you moving in the right direction.

With vendor tradelines, you set up an account with a vendor that has payment terms where invoices must be paid by an agreed-upon time frame.

Under net-30 terms, for example, you have 30 days to pay the invoice. With net-45 terms, you have 45 days to pay. With net-60 terms, you have 60 days to pay, and so on.

As long as you pay on time and the vendor reports it to a business credit bureau, it should start alleviating your bad credit and boost your business credit score.

And as you get in the habit of consistently making prompt payments, your business credit should keep growing, eventually helping you overcome your poor credit history.

Just be sure that the vendor reports payments to the business bureaus — ideally, choosing those with short payment terms, as this will help you build credit faster.

Apply for a Business Credit Card

One of the primary factors for determining business credit is payment history. In fact, most experts agree that this carries the most amount of weight overall.

Besides paying your vendor tradelines on time, another good way to build credit quickly is by applying for a business credit card and using it responsibly, not merely making your payments on time but ahead of time.

Also, just like with a personal credit score, credit utilization comes into play here, meaning you'll want to keep your credit card usage low.

The combination of prompt payments and low credit utilization can quickly build good business credit and counteract a bad personal credit score.

Just note that you may have to opt for a secured business credit card initially if you don't qualify for an unsecured credit card.

Make sure that your secured business credit cards report to the business credit bureaus and not to the personal credit bureaus. There aren't very many secured business credit cards that report to the business credit bureaus, so this is worth calling out.

When you're just starting out, you may also need a personal guarantee or have a higher interest rate than you may like from a lender.

But once your business credit improves, your options should increase and you may be able to obtain a better credit card with better terms and conditions.

Pay Your Business Bills on Time

Again, payment history is the single most important factor for determining your business credit score.

Just as it's critical to pay a vendor trade line, business loan, and business credit card bills on time, you should get in the habit of paying all your business bills on time.

And whenever possible, go the extra mile and pay them off in advance so you're always ahead of the game.

Establishing strong business credit is all about creating a virtuous cycle of good credit.

Staying on top of bills helps you avoid falling into debt and being delinquent on payments. This, in turn, should make you a more attractive borrower to lenders which should help you negotiate better business loan terms and repayment options.

In time, this can help you achieve a good business credit score and may even give you access to the best business credit cards.

While it can be tough at first when you're trying to work your way through bad personal credit and generate cash flow, it should get easier in time.

Monitor Your Business Credit Reports Regularly

Just as it's important to routinely monitor your personal credit, it's the same with your business credit score.

That's why you should get in the habit of regularly monitoring your business credit report so you know what's happening with each major credit agency.

Doing so has two key advantages.

First, it will give you a baseline assessment of how you're doing with your business credit and what your overall trajectory is.

While you won't likely be in an ideal position initially because of your bad personal credit, your trajectory should hopefully improve over time, and you'll know exactly where you stand.

Second, you should be able to identify any incorrect information and catch errors.

Although each major credit reporting agency does a pretty good job at credit reporting, mistakes do occasionally happen.

If there's an issue, staying on top of your business credit report should ensure you quickly find it so you can dispute an error before it damages your business credit score.

It's just a matter of contacting the credit bureau that made the mistake via a formal letter.

Keep Working on Your Personal Credit

Even though you may have poor personal credit right now, it doesn't mean it has to stay that way long-term.

Your credit — both personal and business — is constantly fluctuating, and it's never too late to right the ship.

This starts with first understanding which factors contribute to your personal credit score, which, according to FICO, are:

• Payment history – 35%
• Amounts owed – 30%
• Credit history length – 15%
• Credit mix – 10%
• New credit – 10%

The other part of the equation is following fundamental best practices, such as:

• Consistently making payments on time or ahead of time
• Keeping your credit utilization ratio no higher than 30%
• Diversifying your credit
• Not closing out credit card accounts (this adds to your credit history length and lowers your credit utilization ratio
• Not applying for too many new accounts at once (this can be a red flag to lenders)

I spoke with Forrest McCall, a personal finance expert and founder of Don't Work Another Day, who emphasized a more personal approach to building credit, "When it comes to managing your personal credit, it's all about comparing yourself to where you were a few months ago, instead of comparing yourself to others."

McCall recommends keeping tabs on your credit over time and making small changes to how you manage your money so you can start seeing your score climb.

You may also want to consider applying for a credit limit increase on a business credit card as you become a more trustworthy borrower because this too should lower your credit utilization ratio.

That way, you should be able to steadily improve your personal credit score while simultaneously establishing good business credit for a win-win.

Closing Thoughts

Building credit as a business owner with bad personal credit can certainly be challenging. But it's by no means an insurmountable obstacle.

Even with poor personal finance, knowing what to prioritize and having a clear-cut strategy should help you quickly build business credit and set the tone for creating a thriving company.

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