Here's the question behind most business credit searches: how do I get financing for my business without putting my personal credit on the line?
For a newer business, the honest answer is that you mostly can't. The first lender to look at your company is going to look at you.
That's not bad news. It just tells you where to start.
Do lenders check personal credit for a business loan?
Usually, especially for a newer business. For an SBA 7(a) loan, anyone who owns 20% or more of the business must personally guarantee it, and the lender reviews the credit history of the business, its owners, and its guarantors.
A personal guarantee means that if the business doesn't pay, you do. So the lender reads your personal file the same way it would for any loan in your name: payment history, balances, collections, charge-offs.
Business credit cards work the same way at the start. Chase and Capital One both say that applying for a business card usually means a hard inquiry on your personal credit, and a personal guarantee is common. Chase also warns that missed payments on a business card can hurt your personal credit.
So before you apply for anything in the business's name, know what's on your own report. Here's how to read it the way a lender does.
What is business credit, and who keeps track of it?
Business credit is a separate file on your company, kept by business bureaus like Dun & Bradstreet and Experian. Their main scores run from 1 to 100. Dun & Bradstreet's PAYDEX measures how promptly you pay suppliers, and a PAYDEX of 80 means you pay on time.
PAYDEX (Dun & Bradstreet). 1 to 100, weighted by dollar amount. 80 means paying within terms. Scores near 100 mean paying early. A 70 means paying about 15 days late, and a 50 means about 30 days late.
Intelliscore Plus (Experian). 1 to 100. A higher score means lower risk.
Here's the difference that surprises people. On your personal report, a payment is either on time or late. PAYDEX goes further and rewards paying before the due date. Pay a supplier early and your score climbs above 80.
Is my business credit report private?
No. Business credit reports aren't consumer reports under the Fair Credit Reporting Act, and Experian says anyone can check a business's credit score. Suppliers, lenders, and competitors can all look.
Your personal report is protected. Someone needs a legitimate reason, like your application for credit, to pull it. Your company's file isn't protected that way. Treat everything a supplier reports about you as public, because it is.
How do I start building business credit?
Start by setting the business up as its own borrower, then give suppliers a reason to report good payment history on it.
- Get an EIN. An Employer Identification Number is always free from the IRS, and you get it immediately when you apply online. The IRS warns about websites that charge for it. Don't pay one.
- Open a business bank account. Run the business's money through it, not your personal checking. A lender reviewing the business wants to see the business's own cash flow.
- Get a D-U-N-S number. It's free from Dun & Bradstreet and usually arrives within 30 business days. There's a paid option if you need it sooner.
- Open accounts with suppliers that report. A PAYDEX needs at least three payment experiences from at least two suppliers, and suppliers report to Dun & Bradstreet voluntarily. Before you count on an account, ask the supplier whether it reports your payments, and to which bureau.
- Pay early. On time keeps you at 80. Early is what moves you toward 100.
- Keep your personal file clean. It's still the first thing a lender checks, and it will be for a while.
Do business credit cards show up on my personal credit report?
The application usually does: most issuers run a hard inquiry on your personal credit and ask for a personal guarantee. Whether the account itself reports to your personal file depends on the issuer.
Ask before you apply. Some issuers report every month of activity to your personal file, which means the card's balance counts toward your personal utilization. Others report only when something goes wrong. You want to know which kind you're signing up for, because utilization moves your personal score more than most people expect.
Where to start
Business credit gets built on two files, and the personal one comes first. A lender deciding on a guaranteed loan is reading your personal report the same way any lender does, line by line.
My work is your personal file, the part every business lender reads first. If you're a client of mine and business financing is your goal, text me at 1-877-892-6691 before you apply and we'll go through your report together. If we haven't worked together yet, book a free consultation. I'll read your report line by line and tell you what a lender is going to see when you put your name on the guarantee.