How to build business credit with bad personal credit

You probably know about personal credit and how it plays a role in qualifying for loans and getting better interest rates. Well, business credit is similar. It gives lenders an idea of your company's financial history.

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Having a strong business credit score increases your chances of getting approved for loans and financing with better terms and rates. However, personal credit can affect business credit. If you have a poor personal credit history, it can be challenging to build business credit. Lenders may take personal credit into account when assessing the financial risk of your company and deciding whether to issue you a business loan.

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In this article, we'll show you how to build business credit with bad personal credit, giving your company more financial opportunities. We'll also guide you through finding business credit card options and how to apply for them, even with less-than-good credit.

How does personal credit affect business credit?

When lenders review a company's loan application, they need to consider the entire financial picture to assess the risk of investing in that company and the likelihood of repayment. While personal credit doesn't always directly reflect a company's reliability in repaying loans, lenders sometimes have limited information, especially for small businesses with little or no established business credit. As a result, a personal credit check becomes part of the assessment.

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Small business owners with low personal credit scores may struggle to obtain loans, or they may receive less favorable interest rates. You can get approved for a business card with bad credit, but you will have limited options.

Can I get a business credit card without using my personal credit score?

Yes, if you’ve established strong business credit, then you can get some business credit cards without using your personal credit score. However, most small-to-mid-sized businesses won’t have the business credit score required to take advantage of this option. In that case, your other two options are a corporate card or a secured credit card.

Can I start a business with bad personal credit?

If you need a loan to finance your business, it will be hard to get one with bad credit. However, if you already have some startup capital and want to get started, you will probably be able to qualify for some credit cards. Or, consider getting a secured card to help you start building business credit. That way, you’ll have an easier time applying for loans later on.

What credit score is required for a business credit card?

Personal FICO scores range from 300 to 850, while business credit scores generally range from 0 to 100. To get a business credit card, card issuers typically require a good personal credit score, often defined as higher than 670.

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How can you build business credit with bad personal credit?

Having bad personal credit doesn't mean you can't build business credit. Here are steps you can take to work toward this important financial goal:

1. Register your business and get an EIN

Your first step is to formally register your business as a separate entity. Incorporate your company as an LLC, S-Corp, or C-Corp and register it with the government to obtain an employer identification number (EIN), which acts as a social security number for businesses.

An EIN is important for opening a business bank account and is usually required to take out business loans. When you get a business credit card, an EIN is also what your card issuer uses to report your payment history to the business credit bureaus.

2. Apply for business credit with Dun & Bradstreet

The three main business credit bureaus are Equifax, Experian, and Dun & Bradstreet. Of all of them, only Dun & Bradstreet requires you to apply for a DUNS number online in order to start building your credit score.

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A DUNS number is required to apply for federal grants, and lenders and other businesses may use this number to look up your business credit profile before deciding to do business with you.

3. Open a business bank account

Separate your personal and business finances by opening a business bank account. This protects you from personal liability related to business expenses and keeps your company's financials separate from your personal finances. It also helps establish a relationship with the bank.

4. Consider trade credit

Obtain lines of trade credit to build business credit. These short-term, business-to-business lines of credit allow you to purchase goods or services from vendors and pay later. Trade financing helps build credit, but make sure you choose a vendor that reports your payment history to credit bureaus, as not all vendors do.

5. Take out a revenue-based loan

Consider revenue-based financing for your company. This approach depends more on revenue than credit scores. Lenders receive a percentage of your gross revenues in exchange for providing capital.

6. Apply for a business credit card

Using a dedicated business credit card can help build your business credit score, even if your credit history is poor. It’s best practice to keep business expenses off your personal credit card.

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Be aware of your provider’s interest rates, balance transfer rates, and annual fees to make sure you can manage on-time payments.

7. Make all payments on time

Whichever financing options you choose, ensure that you pay all bills on time. This helps develop a strong payment history and build your company's credit.

How does monitoring your business credit work?

Monitoring your business credit closely is crucial for improving your company's financial standing. Sign up with one of the three main business credit bureaus—Dun & Bradstreet, Experian, and Equifax—to receive regular reports. These credit reports help you keep track of your company's finances and monitor your creditworthiness.

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If you're dissatisfied with your business credit score, don't get discouraged. You can improve your business credit history by paying bills well before their due dates and keeping an eye on your credit utilization rate. This rate is the ratio of your balance to your credit limit. Aim to keep your balance below 30% of your credit limit to demonstrate responsible credit use. This leads to a better credit profile and more financing options.

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Like personal finances, always stay vigilant and make informed financial decisions to save money and prepare for your company's future. Establishing positive credit habits requires effort, but it pays off in the end.

How to find a business credit card you qualify for when starting with poor credit

As mentioned, small business credit cards are an excellent way to build business credit. Fortunately, there are some cards available to business owners with poor personal credit.

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Corporate cards are a type of business credit card that don't require a credit check or personal guarantee. Instead, corporate credit card issuers consider your company's revenue to determine your eligibility. They also tend to come with higher credit limits than traditional business credit cards, and include built-in expense management software.

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Secured business credit cards are another option if you have a poor credit score but not enough revenue to qualify for a corporate card. Secured cards usually don't have strict personal credit requirements, but you have to pay a security deposit, which acts as your credit limit. As you build credit, you can work toward qualifying for an unsecured business credit card. However, these cards may ask for a personal guarantee, making you personally liable any debts on the card.

Consider business loans for an additional source of financing

Business credit cards are most useful for small purchases and operating expenses, while business loans are better suited for large purchases that you intend to repay over a longer period of time.

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If you need more working capital but don't have the best credit score, consider getting a business loan with no credit check. These loans still have their own approval processes, but other factors will be considered instead of your credit score. 

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Types of business loans that you can get with bad personal credit include:

• Trade credit: As mentioned earlier, trade credit lines are short-term business-to-business loans that allow you to make purchases and pay vendors later.
• Merchant cash advances: Merchant cash advances allow you to get a lump sum of cash in exchange for a portion of future sales revenue.
• Invoice financing and invoice factoring: Invoice financing allows you to get a loan based on the amount owed on unpaid invoices from customers. Invoice factoring is similar to invoice financing, but with slightly different terms.
• Equipment financing: Equipment financing offers a way to borrow funds in order to lease or purchase equipment you need. Some lenders will offer equipment financing even with a low credit score.

Ramp's corporate card with no credit check or personal guarantee

At Ramp, we consider your revenue and amount of cash in a business bank account to determine whether you qualify. There's no credit check, credit score requirements, or personal guarantee. Plus, you may be able to access a higher credit limit than traditional business credit cards based on your sales data.

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Ramp's corporate card comes with built-in expense management tools like automated expense reports and custom spending controls to help you stay on top of your business finances. You'll also get 1.5% cash back on purchases and access to over $350,000 in partner rewards. There's no annual fee, late fees, or interest.

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If you need business financing, you can also access working capital that lets you pay your vendors later, giving you the cash on hand to invest in growing your business.