7 Tips for Replacing Personal Credit with Business Credit

If you have ever applied for a business loan for your startup, you already know the central role your personal credit plays in the process. It does not matter if you are a sole proprietor, an LLC, a nonprofit or any other type of business, the fact is that lenders will rely on your personal credit early on when you apply for loans, at least until you start building credit for your business. Replacing personal credit is an extremely important step in your business’s lifecycle.

How do you build business credit to replace your personal credit?

Establishing business credit for startups or going concerns is simpler than it might seem, though critical, to remove your personal credit guarantees from your business. Steps start by setting up your business as a corporation and end with monitoring your business credit activity.

Once you have your business credit set up and growing, be sure to start replacing your personal credit lines from accounts with business-only accounts. This both minimizes your personal guarantees while also accelerating your business credit building.

Tip 1: Get Your Legal House in Order

The first step in building your business credit is establishing your company as a legal entity. If you are a sole proprietor, this would be a great time to consider setting up an LLC or other legal structure since a legal business entity is required for building business credit. Until you separate your “self” from your business, there will be no such thing as business credit.

For startups, next get a phone number dedicated strictly for your business. Whether it is a landline, a cell phone, or even an internet-based number (e.g. Google) does not matter. What matters is you have a business number.

If you already have a business number, make sure you are publishing it on your website and social media pages as your business and not as your personal number.

After setting up your business phone number, apply with the IRS for an Employer Identification Number (EIN). Generally, there is no need to pay an attorney to do this for you. The IRS has straightforward instructions on their online tool. Expect the process to take about a month, start to finish, so the sooner you begin, the better.

With a legal business structure, a phone number, and your EIN in hand, you are ready to open a business checking account in your company’s name. If you consider regional or local banks, you are more likely to find free checking accounts. They may limit how many checks you write per month, but they do not come with monthly fees. Be sure to specify that the account is business only, not a personal account.

Tip 2: Start Building Business Credit Locally

Now that you have the legal status necessary to open credit, start slowly and start locally. Like personal credit, you do not want to apply for too many lines of credit in too short a period. Look first to your local suppliers and vendors. Talk to them directly. Do not just send a generic email or, worse, send a text. Ask about the possibility of opening up a small line of credit that would allow you to pay your bills within 30 days of the statement date. Do yourself and the vendor a favor and do some research to figure out how much you plan to spend and how much you can afford to spend monthly with the vendor.

Besides your vendors, look around for local companies that offer office and business supplies or even equipment and furniture. If you have sufficient cash to purchase all of the equipment or supplies, ask about the possibility of financing just a small portion of the purchase. If the business is getting paid in cash for most of the purchase, they are more likely to be flexible with financing options.

If you have a vehicle dedicated for business usage, other options for starting to build your credit locally would include tire shops that have their own financing as well as regional gas stations. Be willing to accept low credit limits initially in order to prove your ability and tendency for repaying on time and as agreed. If you have bad credit, there are lenders willing to work with you, like UkBadCreditLoans

Each time you consider applying for a line of credit, ask the vendor if they report account activity to any the credit bureaus (Equifax, Experian, or Dunn and Bradstreet). If not, only proceed if the line of credit makes sense strategically, because it will not help build your credit if the information is not reported.

Tip 3: Register for D-U-N-S

When you make payments to creditors who report to Equifax or Experian, you are automatically building your business credit file. However, many lenders require potential business borrowers to have a D-U-N-S number from Dunn and Bradstreet (dnb.com) in order to apply for a loan. D-U-N-S is not short for Dunn and Bradstreet but an acronym for Data Universal Numbering System. Much like a FICO credit score attempts to predict the likelihood of a consumer paying his or her loans on time, a D-U-N-S tries to estimate a business’s likelihood of paying its debts as agreed. Additionally, you will need a D-U-N-S number if you plan to pursue any government contracts.

To get a D-U-N-S number, you will need to apply for one. The application process is done primarily online, although a follow-up phone call will be required to confirm the application (and to attempt to upsell you to a subscription service that is most likely unnecessary early on). The information you will need to complete the application will include your company’s legal name and address, its business phone number, the name of the CEO or business owner (you), the legal structure of the business (LLC, C- or S-corporation, etc.), the year the business was set up, a brief description of the company’s primary line of business, and the number of employees in the business.

Tip 4: Business Credit Cards

When setting up your business checking account, ask your banker about applying for a business credit card, ideally, one that has no monthly or application fees. Also, confirm that the card does not require a personal guarantee. If it does, then you should be patient and work on the previous steps until your business credit is good enough to qualify for a business loan or line of credit without any personal guarantees.

Within weeks, if not days, of setting up the legal structure of your business, you will begin receiving offers in the mail and via email from credit card companies enticing you to open new lines of credit. As with cards from your business’s bank or credit union, be sure that there are no monthly or annual fees involved and that you are not personally required to guarantee any purchases on the card. At least initially, ignore their promises of rewards and travel points you might build using the card. Focus on building your business’s credit first.

Tip 5: Pay Your Bill on Time (or Early)

This tip seems like a no brainer, right? If you have made a purchase on credit, you should pay it off as agreed (by the due date). However, anyone used to personal credit cards might believe that those minimum monthly payments are the norm. They are not. Any time you make a purchase with a credit card for your business, you should be prepared to repay the full balance within 30 days.

In fact, if you pay off your balance earlier than the due date, you can build your business credit rating even faster. To ensure you build good business credit and prevent accidentally missing a payment, pay off the balance as soon as you make the purchase, especially if the creditor has an online payment portal. Otherwise, you may need to wait for the invoice that has the invoice number required to process the payment.

Tip 6: Check Business Credit Files with Bureaus

While not technically building your credit, checking with the major credit bureaus to confirm your business has a credit file will answer the question of whether you need to continue looking for creditors to report or not. Both Equifax and Experian will have a business credit report on your company if you are building your credit properly. The third major consumer reporting agency, TransUnion, does not currently track company credit.

When you search Equifax and Experian for your business credit, be prepared for a sales pitch. You cannot view your credit report without paying for it. The bureaus will offer you one-time reports or ongoing monitoring services for a monthly subscription. Unless you are in a rush to build your business credit as quickly as possible, you should not feel the necessity of paying for your credit report. After searching for your company on Experian, you will know if any credit accounts are reporting because Experian currently includes a graphic indicating such activity. The icon on your business will include the words, “Trade Lines.” Equifax, on the other hand, may not have an option for searching for your business online, meaning you would need to order and pay for your company’s credit report.

Tip 7: Track and Monitor Your Credit

As indicated in tip #6, you will need to pay for your business’s credit report if you would like to view it. Additionally, for ongoing credit reporting monitoring, each reporting agency will require you to enroll in their subscription services, costing you money you would likely do better with using elsewhere in your company.

Instead, you might consider signing up for a free monitoring service from an organization like Nav. Nav offers various levels of credit monitoring that range from its free basic service to plans that include identity theft insurance and live customer service access. For most small businesses, the free service is going to be sufficient. With this free service, you will most importantly receive free summaries of your business’s credit reports through Dunn and Bradstreet, Equifax, and Experian. While you will not see individual credit lines or activity (payments, balances, etc.), you will know how many accounts are reporting. Interestingly, Nav reports payments on their subscription plans to the credit bureaus to help you build your credit history.

Additionally, CreditSignal from Dunn and Bradstreet offers free business credit notifications whenever there is activity on your accounts. Finally, if you make monthly payments that are not reported to your Dunn and Bradstreet account, you can use CreditSignal to submit the information for consideration, although this will require you to sign up for a monthly subscription service.

Related Questions

What companies help build business credit? Besides local vendors and supply companies, you can find online suppliers that often work well with startups and business owners who are new to credit. These include companies like Quill, Uline, and NewEgg Business.

Are there business cards for startups that do not charge annual fees? To qualify for a business credit card that has no annual fees, you typically need to have a good or excellent credit rating for your business. Otherwise, you will need to prove a large balance in your business checking account.


Author and speaker Todd Christensen, AFC, MIM, MA, of Money Fit by DRS promotes individual financial responsibility and household financial stability in his writings and conference presentations. He has been interviewed by and featured on NBCNews.com, Fox Business News, Forbes, HuffPost, and Mint.com.

Leave a Reply

Your email address will not be published. Required fields are marked *

Trending Posts

About US

365 Business is a new organization dedicated to the small and medium businesses (SMBs) of the world. Our mission to to provide well researched and actionable business tips that business owners and entrepreneurs can digest and leverage in 5 minutes or less.

365 business tips

Popular Articles

Subscribe For More!

You have been successfully Subscribed! Ops! Something went wrong, please try again.


Edit Template