How To Create Business Credit With A Low Personal Credit Score
Establishing business credit is essential for raising funds and ensuring a smooth start-up journey.
But when you already have bad personal credit, it can be an extremely frustrating experience.
Personal credit is based on your personal financial history. It can be damaged by recent missed loan repayments, multiple credit applications, missed bill payments, and even non-voter registration.
A business credit rating is based on your company’s financial history and serves as an indicator for lenders to know if you are likely to repay your loans. Your business may have a bad credit rating because you haven’t paid off your loan or made a number of unsuccessful applications.
A bad credit report will suggest that you are a high risk borrower and make it difficult to access loans.
So how can you build business credit with bad personal credit?
The first step is to request a credit report so that you can see your credit score. Then you can begin to formulate a plan to develop your business credit.
There are a number of credit reporting agencies (CRAs) that hold a credit report on you. They have a legal obligation to provide you with a copy for £ 2.
A credit report details your:
- Available credit and existing account
- Refund history
- Any bankruptcy or court decision against you
- Whether you are on the electoral list
- Any recent credit request
- Anyone you are financially associated with (things like a joint bank account or mortgage)
But what do you even do with that credit report once you have it. Peter Tuvey of Fleximize says you should audit him.
He says, “When evaluating these reports, it is important to pay attention to items in the ‘negative’ category and keep an eye out for signs of outdated information, business fraud or identity theft. .
“It’s important to note that every credit bureau has a unique formula for calculating scores, and every lender will look at different types of data, so maintaining more than one of these credit reports online will prove beneficial to your business. “
Forming a society
Formally forming a limited liability company is the first step in creating business credit because it legally separates any personal debt you may have from your business finances. Likewise, bad business credit shouldn’t impact your personal credit rating.
You can set up your limited company with Companies House through a training agent. You will need a very unique name to be officially declared as a limited liability company.
You will also need:
- A business address
- At least one director
- At least one shareholder
- A SIC code that identifies the nature of your business
Find out more in our step-by-step guide to how to register a business.
Get a secure business credit card
Wondering if you can get business credit cards without a credit check? Or a business bank account without a credit check?
Well the answer is yes, and using one is a good way to build your business credit.
A business credit card is a card issued to a limited liability company or individual merchant rather than an individual. Like consumer credit cards, your business is assigned a credit limit, with a minimum amount to pay off each month.
Staff can use them without having to submit expenses and it’s a good way to track business expenses.
Typically, a business credit card will have a withdrawal limit of £ 500 per day and an annual fee of £ 32. You can negotiate a significantly higher credit limit than with a personal credit card. Typical business credit cards have a spending limit of around £ 1,000.
Fleet credit cards
Corporate Fleet Fuel Credit Cards can be used by your mobile workforce to pay for gasoline and diesel on the go.
The deposit for a fleet credit card is lower than for a business credit card, making it a more accessible option for a small business.
Since there is a record of all fuel card transactions, they can also reduce administration and improve fuel efficiency by providing detailed usage information. They can also be tied to particular vehicles and are safer than carrying cash.
Providing your fleet employees with fleet credit cards is also a great way to build business credit.
Learn more about fuel cards for small businesses.
Trade finance is basically a short term credit loan from one business to another business.
It can be used to fill the trade cycle financing gap where an exporter may need to mitigate importer’s risk, while the importer needs to mitigate supply risk.
An importer can prepay for the goods and the importer’s bank can provide a letter of credit to the exporter’s bank.
For a business with bad credit, this can help improve your payment history and your borrowing reputation.
Funding of revenue
Revenue-based financing, or royalty-based financing, is a form of financing in which investors receive a percentage of the company’s gross income in exchange for lending your trading capital.
Unlike equity financing, the lender does not acquire a controlling interest in the business. Since it’s mostly based on your business bank deposits and other banking data, rather than your credit score, it’s a good way to raise funds when your credit is low.
Income financing can help you improve both your business credit and your personal credit.
The best tips for building good business credit
Finally, Tuvey shares his top tips for improving your business credit score:
- Think carefully when you apply for credit – According to the founder of Fleximize, every credit application you file will be noted on your credit report, even if it is unsuccessful. Every rejection can damage your credit history. “Credit bureaus also take into account the difference between your current assets and liabilities, so having a positive cash flow means a higher credit rating,” he adds. Good cash flow suggests a more “solvent” business
- Focus on paying creditors on time or earlier – Make your repayments on time and pay off your accounts sooner to show you’re a smart borrower. “The use of credit is also taken into account when applying for credit, so avoid using more than 70% of the funds available in your account,” advises Tuvey
- Use lenders who report to credit reference agencies – a good payment history can help increase your business credit if your lender reports to the credit bureaus. Banks tend to report to credit bureaus, but it will be difficult to get this type of loan with a bad credit rating. Find out in advance if they report to credit bureaus
- Beware of county court judgments – “You can get a County Court Judgment (CCJ) or a High Court Judgment if someone takes legal action against you for money they think you owe them,” says Tuvey. Make sure to settle a registered CCJ against you within 28 days to ensure the judgment is overturned and will not appear on your record. “Unpaid county court judgments show up on your register for up to six years, so avoid this at all costs”
Why Build a Good Business Credit Score?
In conclusion, Tuvey explains why it’s not just investors who will appreciate a good credit rating.
“Building good business credit can help you get a low-interest small business loan or business credit card, not to mention better terms from suppliers.
“If you are trustworthy, it might even attract new customers to your business, given the public nature of business credit scores. “