How to Build Business Credit with Bad Personal Credit
Whatever you do.. never let bad personal credit destroy your dreams of starting your very own business. It may take a little longer to get started at the beginning, but it is possible. The key is business corporate credit. However, it is important that you know how to build business credit with bad personal credit.
Start a Business by Learning How to Establish Business Credit with Bad Personal Credit
What's very important for you to understand when it comes to how to build business credit with bad personal credit, is.. it is a process. It takes some time, but not forever. You have to actually climb the mountain "the correct way" in order to get to the top. There is no automatic magic helicopter ride. With that being said, once you are up there; all you have to do is stay there. What you learn on the way up will make staying there much easier.
How to Get Business Credit with Poor Personal Credit: Set Up Your Company to Be Separate
A lot of business owners do not realize that you can’t even start building business credit until your business is set up in the correct fashion form. Until that happens, any accounts you have are just reporting to your personal credit, even if they are called business accounts. How do you fix that? You have to set up your business as a fundable entity separate from you as the sole owner.
Separate Contact Information
Your business has its own phone number, fax number, and address. That doesn’t mean you have to get a separate phone line.. or even a separate location. You can even still run your business from your home or on your computer if that is what you desire. You don’t even have to have a fax machine to be honest.
Incorporating your business as an official S-corp, LLC or corporation is vital. It lends credibility to your business as one that is legitimate. It also offers some protection from liability.
The option you choose does not matter as much for fundability as it does for your budget and needs for liability protections. The best thing to do is talk to your personal tax professional or business attorney. What's going to happen is that you are going to lose the time in business that you have. When you set up your business and incorporate, you become a new entity. You basically will have to start over. You will also lose any positive payment history you may have accumulated unfortunately .
This is why you have to incorporate ASAP. Not only is it necessary for fundability and for building business credit, but so is "time in business". The longer you have been in business.. the more fundable you appear to be. That starts on the date of incorporation, no matter of when you actually started doing business.
Business Bank Account
You will have to open a separate, dedicated business bank account. First.. it will help you keep track of business finances all in one. It'll also help you keep them separate from personal finances for tax purposes.
Furthermore, there are several types of funding you can't get without a business bank account! Many lenders and credit cards providers want to see one with a minimum average balance at the start. In addition, you can't get a merchant account without a business account at a bank. That means, you won't be able to take credit card payments. Studies have shown that consumers tend to spend more when they can pay by credit card.
Spend the time and invest money necessary to ensure your website is professionally designed and works well. Pay for hosting too. Don’t use a free hosting service. Along these same lines, your business needs a dedicated business email address. Make sure it has the same URL as your Website. Whatever you do, never use a free service such as Yahoo or Gmail.
How to Get Business Credit with Poor Personal Credit: Get Accounts Reporting
This is the part that a lot of business owners don’t understand. It's not easy to get credit in the name of your company when you don’t have credit to start with. There are a few hacks that can help you jump over this hurdle however.. Once you break down the need credit to get corporate credit wall, you can work your way up through the credit tiers!
The other piece of this puzzle that is missed by many business owners is that you have to have a D-U-N-S number for it to work. Dun & Bradstreet is the largest and most commonly used business credit reporting agency. If you do not have a D-U-N-S number, you do not have a file with them. If payments are reporting to them and there is no corresponding D-U-N-S, the payments will not count. To build business credit you absolutely have to have this number.
Now, how do you get accounts reporting without your personal credit coming into play?
Ask The Vendors You Already Work with to Report Payments to Credit Agencies on your behalf..
Vendors you already have a relationship with may be willing to extend credit without a credit check. If not, they may offer net 30 terms on invoices. They don’t have to, so you will have to ask. The worst that can happen is they say no. If they say yes, ask them to report the payments to the business credit agencies.
Talk to Utility Providers about Reporting Payments
You pay things like utilities, rent, and internet each month anyway. Ask those companies to report payments to the business credit reporting agencies. Again, the worst they can say is no.
Use Starter Vendors in the Vendor Credit Tier
This is a little-known secret of how to build business credit with bad personal credit. Many are unaware of starter vendors. They are part of what we like to call the vendor credit tier. Certain retailers will extend Net 30 terms in your business name without a credit check. Then, after you pay, they will report those payments to the business credit reporting agencies (CRAs).
This is how you can get the ball rolling with business credit. They do not check either your business or personal credit score. Of course, they do have other risk reducing guards in place. These vary by vendor. When you ask yourself “how do I build business credit,” starter vendors are the answer. Here are a few to help you start the process.
Quill Office Supplies - Quill sells office supplies as well as cleaning and packaging supplies. Products range from office furniture to office supplies and more.
They report to D&B. If you do not already have a PAYDEX score, you will have to place an initial order first. Generally speaking, they establish a 90-day prepay schedule, and if you order each month for three months, they will most often approve you for a Net 30 account.
Uline - Uline sells shipping, packing, and industrial supplies. Also, they report to Dun & Bradstreet. This means you must have a D-U-N-S number.
In addition, they ask for 2 references and a bank reference. The first few orders might need to be paid in advance to get approval for Net 30 terms.
Grainger Industrial Supply - Grainger sells power tools, pumps, hardware and other things. In addition, they can handle maintenance of your auto fleet. You need a business license and EIN to quality, as well as a D-U-N-S number.
You can apply by fax or over the phone. If you need less than $1,000 in credit, you only need a business license for approval. For over $1,000, you will need trade and bank references.
If you are just starting out and do not have references, the $1,000 is plenty to get you started building your business credit.
Behalf.com - Behalf is a way of getting paid through an app, but they also offer funding. The more you have your customers pay you through Behalf, the more likely Behalf is to offer you favorable terms when it comes to funding.
Funding can be through purchase financing or a virtual MasterCard option. Terms run from Net 30 to 180 days, and they report to Dun & Bradstreet, Experian, and Equifax. This fact alone, that they report to all the major credit reporting agencies, makes them an extremely valuable tool in building business credit.
How to Get Business Credit with Poor Personal Credit: Fix Your Personal Credit
Just because you now know how to build business credit with bad personal credit, you shouldn’t let your personal credit stay bad. Get a copy of your credit report and take a look at what’s on there. If there are mistakes, fix them. Then, make payments on time. Contact us to take advantage of our Credit Repair packages!
How to Get Business Credit with Poor Personal Credit: Business Credit Monitoring
If you set up your business to be a separate fundable entity and utilize the vendor credit tier properly, you can definitely build business credit despite bad personal credit. However, you cannot let your personal credit remain bad. Business credit is great, but many lenders still require a personal guarantee. Most of those will absolutely check personal credit as well. By having both strong personal and business credit, you open doors to so many more business funding options. In this way, your personal credit is just as much a part of business fundability as business credit is.
You also need to take some time, while building business credit, to figure out what else affects the fundability of your business. For example, in addition to how your business is set up, something as simple as a parking ticket or a lien can even affect the fundability of your business. You may be surprised at what else you find out.
Lance Shipp - Credittude Financial, Inc
Lance Shipp is the lead Content Manager for Credittude Financial. His duties include daily blogging, creating weekly webinar content, and writing articles about business credit, credit repair and aged shelf corps.