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How to Build Business Credit Without Using Personal Credit

10 min read

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Small business owners often rely on personal credit to keep their businesses operational during the early stages of growth. This can be convenient, but it can also lead to significant personal financial liability if the business incurs debt that it cannot pay. One of the ways to avoid this is to begin establishing and building a positive credit history for the business itself, but this can seem confusing and even intimidating for many people.

The biggest challenge to using business credit is building a credit history for the business when none currently exists. However, once this initial hurdle is cleared, your business will be able to rely solely on business credit for its operation. This can help reduce interest rates on loans or credit cards in the name of the business, and it can help limit liability for defaults. Here is a step-by-step guide on how you can begin building your business credit immediately.

Is your business credit related to your personal credit?

If you operate your business as a sole proprietorship, your business credit is related to your personal credit but is not strictly based on it. They are closely related, in fact, but since the credit bureaus collect different information for business credit reports and personal credit reports, the credit scores generated by the two credit histories will not be firmly linked to each other.

The catch, however, is that in the case of most sole proprietorships, any loans or credit that is applied for will generally require a personal credit check. This is often done to see how your personal finances and debts are handled before making a decision to lend funds to your business or extend a line of credit for your business. They use your personal credit as an indication of how likely your business will be to manage its debts responsibly.

What’s The Difference Between Business Credit And Personal Credit?

There are some very significant differences between business credit and personal credit. The first is that there has been strict legislation put in place to regulate consumer or personal credit and how it is reported to the credit bureaus, while business credit reporting does not have as much regulation, and vendors are not even required to report to the bureaus.

Another major difference between the two types of credit is the scoring system. The standard FICO credit scoring system for individual consumers has a scale that runs from 300 to 850. There are several different types of business credit scoring models, and many of them range from 0 to 100. The method of calculation is also much different for business credit than it is for personal credit.

How Long Does It Take To Establish Business Credit?

For those that are diligent, and intensely focused on improving their business credit with the help of a credit repair company, it can take between six months and a year to begin to see definitive improvement. You will need to make sure that on-time payments are made every single month to your various tradelines, which will require you to effectively manage multiple accounts, keep utilization rates relatively low, and even make some payments early.

The behavior and habits that are required to build business credit can be challenging for some business owners to develop, particularly if they are relatively new business owners or have never been good at account management. Some people will catch on to this fairly easily, but for others, it may take longer to build the habits needed to move the credit score in the right direction.

Many people feel that once your business has built up good credit, the hardest part is over. Others may find that building the credit was easier and that maintaining it is more challenging. Either way, once you have built the credit, it will need to be monitored and maintained.

What steps do I need to follow?

Step 1: Choose A Company Name And Contact Information

This may seem obvious to some, but many small business owners try to do things backward and try to find funding and loans before their business is considered to be legitimate or official. Your lenders, and especially your customers or clients, will need to be able to identify your business, as well as communicate with it. This means you’ll need to have established a name for your company, have given it appropriate contact information, and potentially even a digital presence.

Getting a name that hasn’t already been used in some form may be the most challenging task for some small business owners. However, most states have an online tool that can be used to search for available business or company names before starting the registration process. Once you have a name, you’ll also need a phone number, business headquarters address, business email, and in many cases, a web presence as well.

Step 2: Establish a Business Entity

Once you have a business name and pertinent contact information, you can begin the business registration process with your state. You must register your business entity with the state in which you plan to operate, not only to begin legitimate operation but also to separate your business from you personally.

The registration process is generally very simple and can be done entirely online in many states for a small fee. At this stage, if your business will need any professional licensing, credentialing, or other endorsements, you should have already obtained those and have them on hand for registration.

If you stick with the sole proprietor business type, you will not be able to completely differentiate your business entity from you as a person. This can be done, however, by leveraging one of the other business types such as a limited liability company, S-Corporation, or C-Corporation. Once your business has been properly registered and licensed by the state, you are ready to begin building business credit.

Step 3: Get An EIN Number For Your Business

Now that you officially have a business, you will need an Employer Identification Number or EIN. Getting an EIN is free and can be done easily in just a few minutes on the IRS website. This is a crucial step since it signals to both the government and the credit bureaus that you have opened a new business. If the credit bureaus aren’t notified that you have a new business, they can’t create a credit profile for the business.

Your EIN will also be important since it will be required for your business in many of the same ways that your social security number is needed for financial products as a private consumer. It is a unique identifier that will be needed to:

  • Open any business bank accounts
  • Apply for lines of credit for your business
  • Apply for funding as a business, either through loans, grants, or other forms of financing
  • File yearly taxes and report earnings and wages of employees

Step 4: Open Up A Business Bank Account

Now that you have your EIN assigned you will need a bank account for your business. Keeping a separate bank account for your business is essential to keeping a clear separation between personal funds and company money. The mingling of funds can lead to bookkeeping difficulties and can even open up tax liabilities.

While a business account will create a connection and a business relationship with the bank you choose. Having a business bank account is also needed before you can apply for any loans because in most cases, you will need to report current account balances during applications.

Step 5: Apply For A DUNS Number

Some credit bureaus, like Equifax or Experian, will be able to create a credit profile for your business as soon as your lenders and creditors begin reporting your financial products. There is no other registration that is needed. This is not the case, however, with Dun & Bradstreet, which requires an application.

Requesting a DUNS number from Dun & Bradstreet will make your business visible to their bureau, and will allow you to begin receiving a business credit score from them. While getting a DUNS number can give your business considerable new opportunities, like being eligible for federal funding like grants or bidding for government contracts, it can also take up to 30 days to get one, so start the application as soon as you can.

Step 6: Open Business Tradelines

Business tradelines are one of the most powerful tools in building business credit and are lines of credit that are extended to businesses. These lines of credit can be from lenders and creditors, but they can also be from vendors and other businesses. The key to making your tradelines effective is making sure that they report to the major bureaus, making sure that they don’t require personal credit or guarantees, and don’t charge annual fees. Just two or three open tradelines can cause a measurable improvement in your business credit.

Step 7. Request Trade Credit From Vendors and Suppliers

Now that your business is set up and you’re actively building business credit, start applying for trade credit accounts. These are accounts with vendors or suppliers in your company’s industry. A common type of trade credit account is a net-30 account, which gives you 30 days to pay an invoice for inventory, products, or services from that vendor.

Step 8: Make Payments Early And Keep Your Balances Low

In business and personal credit, one of the major factors in good credit is making payments on time. Since your business credit will be difficult to repair once damaged, you should make an effort to make payments early to ensure there’s no way a payment can get logged late. Your utilization rate will also continue to be important, to only add to your balance when you absolutely need to and keep credit usage as low as possible.

Step 9: Monitor Your Business Credit Reports Regularly (For errors)

Just as studious consumers should be checking their credit reports often for errors, the same should be done for your business. After all, the last thing you want is to go through all this trouble and do all this work, make all this effort, only to become a victim of not monitoring. Not only will it help reduce the chance of errors, but it will give you evidence that your work with the tradelines is making progress as well. If an error is found, you can dispute it immediately, to limit the impact it has on your business’s overall credit.

Keep building your personal credit

While you should maintain a solid focus on building and improving your business credit, you should also make an effort to improve your personal credit. Even though your business and personal credit are separate, the line that separates them can be blurred sometimes, and creditors or lenders may still want to view your personal credit history before lending funds.

Why is it important to build your business credit history/score?

You may not realize it if your business has good revenue and a solid cash flow, but building a good business credit history and credit score can have a long list of benefits. Understanding how it can benefit your organization is often helpful in creating the drive to improve its credit score.

1.     Access to finance

Your business credit score is the most common metric by which its reputation and overall creditworthiness will be evaluated. Seeing a good score means that your creditor or lender will be more likely to grant you the funds you need. Business growth is expensive, and having good credit can give your business access to the capital it needs to grow.

2.     Affordable financing

Borrowing capital can be expensive, but having good business credit can drastically reduce the cost of borrowing. Being a good debtor means that you are more likely to get better rates and terms on loans or lines of credit that you apply for. Low-interest loans, fee-free loans, and low-APR credit cards are all possible with good business credit.

3.     Improved business-to-business relationships

In many cases, the credit of a business is often seen as a measure of its reliability and character. It can have a significant effect on how other businesses, industry vendors, and even lenders see your company. Better credit means they are more likely to want to work with you, while worse credit shows your business as a bigger risk for non-payment or default.

4.     Separation of business and personal finances

Maintaining a solid business credit score means you won’t have to put your personal finances on the line when applying for funding. Many businesses with poor credit are required to provide a personal guarantee with their own personal credit, which can hurt both you and your business in the event of a default. Keeping a clear separation is the best way to ensure your personal credit remains as unaffected as possible.

5.     It’s hard to repair business credit

While legislation like the FCRA, or Fair Credit Reporting Act, makes it much easier for consumers to increase their credit scores, no such mechanisms exist for business credit. This means that if your business credit becomes damaged, it becomes very hard to repair. Being proactive is often the best tactic, and building a strong business credit score from the beginning can take much less time and effort.


Ali Zane – CEO & Founder Speaker

Ali is a credit repair advocate with nearly 20 years of experience providing his clients with high-level access to resources that resolve their credit problems. Ali became involved in the credit repair industry following his concern for a lack of ethical and effective credit repair services for consumers and mortgage lending professionals. He has written extensively on credit/finance and is a sought-after public speaker.

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