Bad credit? Here’s how to build business credit with a low personal credit rating

lady in beige coat and grey scarf sits in front of laptop holding credit card

The uptick in businesses seeking outside capital during tough times reinforces the importance of having solid business credit. It can be crucial to financing your business and getting it up and running. But what if you have bad personal credit? 

It is possible to start a business with poor personal credit.

If you fall into this category and are wondering if it’s possible to get business financing or a business credit card, you need to understand how business credit scores work. 

In this article, we’ll explain how business credit differs from personal credit and how it helps your business. We’ll also offer insights into how to establish business credit—even without strong personal credit. 

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Starting a business without a personal credit score

A business credit rating shows lenders and potential investors your business’s financial history and helps them determine whether you’re likely to repay your business loans.

A personal credit score, on the other hand, is a rating based on your personal financial history. It takes into account credit extended for non-business reasons—things like personal credit cards, mobile phone contracts or mortgages. 

Newer businesses and startups often lack the kind of history needed to establish a strong business credit score. In these cases, lenders may take your personal credit history into account. That said, if your personal credit score isn’t strong (or you don’t have one at all), it is possible to build your business credit independently from your personal finances.

To reiterate, if you need to apply for a line of credit before you’ve established a good business credit score, and your personal score isn’t strong, you still have options.

We’ll dive into three things you can do to build a business credit score when you’re starting from zero later. First, let’s look at what credit score you should be aiming for when seeking a line of credit and what types of reports lenders might be taking out to find out more about your business.

What credit score is needed to get a business loan?

Let’s look at the typical scores lenders use to analyse your creditworthiness. Business credit is generally scored on a scale from 0 to 100. As with personal credit, the higher the score, the less risk you pose and the more likely you are to get a loan. Your score can roughly be read as follows:

  • 80-100 indicates your company is low risk
  • 50-79 indicates medium risk
  • 0-49 is considered high risk

Here’s what this looks like visually:

credit score pyramid

You can likely secure a loan at any of these levels. But with higher scores, you’ll have better luck with traditional lenders and receive better loan terms—including lower interest rates. 

So how are these scores determined?

Top Tip: There are tons of things that you can do to slowly but surely improve your business credit score. This advice applies to business owners that both do and don’t have great personal credit to lean on, as maintaining strong business credit is an ongoing process. To learn more, read our guide to everything you need to know about your business credit score (and how to improve it) 📈

Types of credit reports

Before we look at two types of reports that companies might seek about your business, let’s cover hard vs soft credit checks.

A hard credit check is one that a company may carry out when you’re seeking business funding. It’s also usually carried out by utility providers when you apply to use their services. Hard credit checks will appear on your credit report, and too many hard credit checks in a short space of time can hurt your credit score.

A soft credit check is the type of basic check on a few key pieces of information, instead of a deep dive into the complete report. For example, if you were to check into your credit score, it would be logged as a soft credit check. Or, if a company wanted to see how successful your application would be before committing to the full application process, they would run a soft credit check. 

Soft checks are not visible to other companies on your credit report, and they do not affect your credit rating.

In the UK, lenders typically turn to a few major credit reference agencies (CRAs) for reports. This type of check is considered to be a hard credit check, and each has its own purpose and scoring system. Some CRAs focus on investment potential based on financial history (i.e. to ensure the business is likely to pay loans back), while others focus on criminal risk factors (i.e. to ensure it is a legitimate business).

Here’s a look into two reports from top CRAs, what they offer and what you can learn from each.

Experian’s Business Express Credit Check

Experian’s Business Express Credit Check is a credit report you can purchase on any company, including your own. It includes an in-depth credit history for the business, bankruptcy filings, credit scores, credit limits and more. This report is aimed at companies checking into their suppliers, but it’s also a good way to see a detailed report that an investor might purchase about your company. 

For less detailed insights into your business’s credit score and its contributing factors, Experian also has a My Business Profile tool.

Equifax’s Commercial Credit Report

Equifax’s Commercial Credit Report is an investigative look at potential “hidden links” to directorships. They’ll do this by cross-referencing contact details with other companies and county court judgments (CCJs) to see where there may be potential risks. The aim of these reports is to detect and combat fraud by sussing out businesses that may be involved in criminal activity.

How business credit helps your business

Business loans can help you finance larger, one-time expenses. They can be used to expand your business, buy equipment, or take advantage of promising business opportunities like expanding into new territory.

Your credit score helps lenders decide whether to grant a loan and what terms they’ll offer. Poor credit can limit your options, but building business credit helps you secure a loan and gives you the option to negotiate better terms.

Top Tip: External financing can be crucial to building your small business and staying competitive. Loans and lines of credit are common sources, but you have other options as well. To find out which are best for you, take a look at our guide to 10 ways to fund your small business 🔍

Getting better service costs

Your credit score can have an impact on the amount you pay for services. For example, your credit report directly affects what you pay for insurance—often a necessity for your small business. 

A good report shows insurance lenders that you’re more likely to pay your premiums on time. As a result, you’ll likely get better rates as the lender trusts that you’ll pay in full on or before the due date.

Supporting your business strategy

Good business credit can also impact your plans for your business going forward. Your credit score represents your company’s financial reputation, and a higher score communicates higher value. 

Why? Because as a business owner, you not only seek lines of credit from lenders, you can also choose to extend credit to business partners. To do this, however, you need to run a credit check on your potential business borrowers to ensure they pose no financial risk.

If you consistently retain positive partnerships with businesses that you extend credit to, and vice versa, you prove that you are a reliable, trustworthy partner. This boosts your standing and can have a positive impact on growth. 

As an added bonus, if you plan to sell your business in the future, you could make more from this transaction if you’ve built up good business credit.

How to get business credit without a good personal credit score

Establishing a business credit score can help you build your business faster. And while building good credit takes time, you will see your score start to rise when you regularly use financial best practices, sound business decision-making, and careful monitoring.

Here are three things you can do to build your business credit score from the ground up (without relying on your personal credit score).

1. Form a limited company

If your personal credit score is poor, you’ll want to distance your business finances from it. You can do this by incorporating your company. 

Forming a limited company separates your business finances from your personal finances, making this an ideal first step toward building good business credit with a bad personal credit score. 

Separating your business and personal accounts also protects your personal finances in the case that your business incurs a financial hit (such as a lawsuit). For example, in the event that your company cannot repay a loan, your personal assets (such as your home) won’t be used as leverage.

Top tip: You can set up a business account and register a limited company at the same time with Tide. We’ll even pay the registration fee for you. If you’re a single share-holder, learn more about limited company registration with Tide 🏢

2. Take out a business credit card

If you’ve registered your business and started trading, you’re eligible for a business credit card. Some business credit cards even offer rewards, such as cashback, insurance discounts or 0% interest on purchases for a set time.

Although all credit card issuers will carry out a credit check, some will approve your application despite a poor personal credit rating. You may have to contend with a higher interest rate or low credit limit to begin with, but this can be negotiated as your company builds a reliable credit rating. 

It’s important to note that multiple credit applications can hurt your credit score. This is because lenders will need to submit a “hard enquiry” (which we covered earlier) to learn about your business’s financial history. So do your research and be selective about which credit card lender to apply to.

A business credit card still works like most personal credit cards in that you must make at least the minimum monthly payments to keep in good credit. But if you can begin your business credit journey by paying off your debts in full each month, and avoiding late payment at all costs, you’ll have a better chance of showing investors you can be trusted to pay back their loans.

3. Get a commercial line of credit

Establishing a line of credit with a bank or lender gives you another opportunity to build a repayment history. The longer your history of making timely repayments, the more your score will increase. A commercial line of credit is often available to businesses for less risky, short-term spending. This could be for buying inventory or managing seasonal payroll surges. 

Commercial lines of credit should not be used for large purchases like expensive equipment. 

Unless you can pay those bills in full right away, large purchases requiring multiple payments can actually damage your business credit rating. 

💡 Expert insights

As Tide’s Cash Flow Expert and, with over 40 years experience of credit management, Philip King is passionate about cash flow and supporting small businesses.

Previous roles he has held include that of Interim Small Business Commissioner for the UK Government during 2020 and 2021. This involved providing support and advice to small businesses on their trading relationship with customers, particularly in respect of payment issues. As the Chief Executive of the Chartered Institute of Credit Management between 2005 and 2020, he also promoted the importance of effective cash flow management across industry by working with small businesses to improve their payment performance.

Q1: Why is my personal credit history relevant to getting business credit?

If you haven’t yet built up a business credit score, then it’s all a supplier can look at when deciding whether or not to offer credit terms. But even if your business has a reasonable credit score, a prudent supplier might still look at your personal credit profile.

People who are careless in managing their personal finances often tend to be similarly careless in dealing with business expenses and finance. A supplier wants to be confident that you’re going to be a valuable, reliable, and prompt-paying customer. If you have a personal history of missed payments then they won’t have the confidence they need and will be more reluctant to offer the credit facilities you seek.

Firstly, it’s worth managing your personal finances as well as you can and, secondly, it’s important to build up a positive business credit rating. If the business builds up an exemplary record then suppliers will be less likely to delve into your personal history.

Q2: I’m a micro-business and currently pay immediately for whatever my business needs so why should I worry about my business credit score?

Whatever your business does, it’s likely to sometimes need to buy things that take time to turn back into cash. If you’re buying stock to re-sell, materials or products that are needed to perform a service, or even office equipment that will pay dividends through ongoing efficiency, there is likely to be a time-lag between procuring the goods or services and generating cash from them.

In the early days this might not be significant but, as your business grows, it will become a bigger issue and you might need to fill the resulting gap in cashflow. Getting credit from a supplier is often cheaper and easier than obtaining funding from other sources. If and when you ask for a credit account, having a good business credit score will make the supplier more likely to offer you payment terms and to offer you a larger amount of credit.

Q3: What are the easiest first steps to building a good business credit score?

There are several steps outlined in this article and they all work. Get a business credit card and use it for everyday business expenses. As you pay the balance off each month, your credit score will reflect the positive payment behaviour even if the amounts involved are minimal.

Ask one or two suppliers to give you a credit account. Pay their invoices promptly and you will be building a reputation as a good customer, you’ll have suppliers who can give you a positive trade reference, and you’ll be in a stronger position when a greater need arises.

Take a look at Tide’s Credit Builder. This is a really clever tool that allows you to transfer modest amounts of money into a holding account that will generate a track record of positive payment behaviour and create a positive credit score to support the growth and development of your business.

Wrapping up

A strong credit score is important for helping you finance your small business and keep it running smoothly. Even with bad personal credit, you can establish independent business credit to work your way towards a good score.

Building up a strong business credit score takes time. But the benefits make it well worth the investment. With a good business credit score, you’ll have access to the resources you need, including lines of credit, insurance and loans.

Tide has a number of products and tools to help you take action. We’ll help you predict your cash flow so you can easily access business credit. To boost your credit score and improve your business’s financial health, explore Tide cash flow insights 🎉

Photo by Andrea Piacquadio, published on Pexels

Rupa Gohil

Partnerships Manager and small business accounting advocate

Tide Team

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