How to Build Business Credit with Less-than-Perfect Personal Credit

Starting or growing a business often requires access to credit to manage cash flow, make essential purchases, and build a strong financial profile. But what if your personal credit score has taken a hit or two? While qualifying for a business credit card can be tougher with a lower score, it’s definitely achievable—and it’s worth the effort. Here’s a guide for small business owners looking to secure a business credit card and build credit, even if their personal credit isn’t pristine.

Understanding How Credit Card Issuers Assess Business Borrowers

When evaluating a business borrower, issuers focus on both business income and personal credit scores. The higher the personal score, the more likely you are to qualify for better terms, while lower scores may limit options or increase interest rates.

In general:

• Good credit scores range from 670 to 739 (or higher), signaling creditworthiness.
• Fair credit scores range from 580 to 669, while poor scores (300-579) indicate higher risk.

According to finance expert Gerri Detweiler, some issuers may consider scores as low as 600 for business cards, though options are limited.

Secured Credit Cards: A Path to Building Business Credit

One effective way to improve credit is through a secured business credit card, especially if your credit score is low or you have limited credit history. With a secured card, you put down a deposit that generally matches your credit limit. This approach allows you to build credit by making consistent, on-time payments.

A secured business card can offer the following benefits:

• Credit Limit Tied to Deposit: Your initial deposit sets the credit limit.
• Credit Score Improvement: As long as payments are on time, your credit score will gradually increase.
• Gradual Limit Increases: Responsible use may lead to higher credit limits and, eventually, an upgrade to an unsecured card.

Barry Coleman of the National Foundation for Credit Counseling points out that timely payments are crucial, as payment history makes up 35% of your credit score. With consistency, secured cards can be a reliable bridge to better credit and financing options.

Alternatives to Secured Credit Cards

If you’re hesitant to use a secured card, another option is vendor financing. Certain suppliers, like office and industrial supply companies, offer credit accounts that are easier to qualify for and can help build your credit profile. Coleman advises that businesses secure these accounts, make timely payments, and watch their credit score grow.

While starting limits may be low, they can increase with consistent, on-time payments. Many business suppliers offer this type of financing, which can serve as a stepping stone to other types of credit.

Business Credit Cards for Owners with Lower Credit Scores

Some business credit cards cater to business owners with less-than-stellar credit, although options are limited and often come with higher APRs. Here are a few options worth considering:

1. Spark 1% Classic from Capital One: Designed for business owners with scores as low as 580, this card has no annual fees, offers 1% cash back, and reports payment history to major credit bureaus—boosting both personal and business credit profiles.
2. Bank of America Business Advantage Unlimited Cash Rewards Secured: This secured card requires a minimum deposit of $1,000, offers 1.5% cash back, and provides opportunities for credit limit increases. The account is reviewed periodically, so responsible use could lead to an upgrade to an unsecured card.
3. Ramp Card: With no personal credit check, this unique card gives 1.5% cash back and offers robust features, including expense management and employee spending control. There’s no annual fee and a $250 welcome credit, although it’s primarily for established businesses—not freelancers or sole proprietors.

What to Look for in a Business Credit Card

When selecting a business credit card, consider the following key factors:

• Annual Fees: Many cards charge an annual fee, especially those available to owners with lower credit scores. Compare fees and benefits to ensure you’re getting the best deal.
• APR: The APR (annual percentage rate) determines your interest rate. If you don’t carry a balance, APR is less critical, but a lower rate is ideal for those who may not pay off their balance each month.
• Consumer Protection: Some cards offer purchase insurance, identity theft protection, or extended warranties. Decide which protections matter most for your business.
• Customer Service: Accessible and responsive support is vital, especially if issues arise. Research reviews on customer service quality to avoid headaches down the line.

Pro tip: card fees are often tax-deductible. Ensure any fees you claim are directly associated with the business.

Using Business Credit Cards to Build Credit

Once you’re approved, a business credit card can serve as a powerful tool for building credit. Here are some best practices to follow:

1. Identify the Cause of Credit Issues: Pinpoint why your score is low (e.g., missed payments or high debt) and address those habits. Identifying and fixing the root cause is critical to sustained improvement.
2. Pay on Time: Payment history is essential. Setting up automatic payments or reminders can help you avoid missed deadlines.
3. Monitor Your Credit: Keep tabs on your score with major credit bureaus, such as Equifax, Experian, and Dun & Bradstreet. Monitoring progress helps you make informed credit decisions.
4. Think Long Term: Avoid splurging on items the business can’t afford. Managing finances prudently and focusing on stability makes it easier to access capital later.

Avoid These Common Credit Mistakes

To maximize your credit-building efforts, steer clear of these pitfalls:

• Too Many Credit Inquiries: Multiple applications can lower your score, signaling high risk to lenders.
• Mixing Personal and Business Expenses: Mixing funds can be detrimental to your business’s credit. Keep accounts separate to build a clear, business-only credit profile.
• Ignoring Your Credit Score: Regularly review your credit score for errors and correct any inaccuracies, especially at Dun & Bradstreet, the main credit bureau for business credit.
• High Credit Utilization: Keeping your balance below 30% of the credit limit is ideal. Paying down balances quickly and requesting credit limit increases can help keep your utilization rate in check.

This may be challenging but is achievable. With patience, consistent payments, and responsible use, you can enhance your credit profile, paving the way for better funding options in the future.