Business Credit Center

Five steps to build your personal and business credit profiles

Understanding how your personal and business credit profiles affect each other can help get you closer to achieving small business success.

Published: May 20, 2015
Updated: August 08, 2016

Your small business might have a solid plan and remarkable revenue potential. But when you apply for business credit, your personal credit profile can also carry significant weight, especially if your business credit history is short.

Here are five steps for building your personal and business credit profiles, each of which is important for business owners at every stage.

1. Understand what lenders need to see about your personal and business credit profile.

"What we look for is a proven track record of responsibly handling credit," says Mike Strathman, division lending manager at Wells Fargo. "This means looking at more than personal or business credit scores."

Lenders determine responsible credit use through the 5 Cs:

  1. Credit history

  2. Collateral

  3. Capital

  4. Conditions

  5. Capacity

These factors help evaluate risk and predict how long until a loan can be repaid. As you develop your business plan or apply for credit, your understanding of the 5 Cs is critical.

2. Maintain a strong personal credit profile or start to repair it.

Your personal credit profile comes under more scrutiny if your business has a credit history of less than two to three years. If your personal credit profile contains issues such as late payments or credit card overuse, begin a recovery plan immediately, as time matters when it comes to your credit history.

FICO, an analytics company that provides credit reports among other services, offers tips that can aid your recovery, such as setting up payment reminders and seeing a credit counselor.

3. Keep business and personal credit accounts separate.

Building a strong business credit profile depends on a solid business credit history. Establish this history more quickly by maintaining separate business and personal checking accounts, and opening a business credit card. Each step builds your credit profile, in part, by separating your personal history from your business history.

4. Create relationships with those who can build your business credit.

Owners with short business credit histories may need cash as collateral to secure bank loans. However, you may be able to establish trade credit with vendors, and if you pay those suppliers and vendors on time you will help establish and build a positive credit history.

For instance, maintain strong relationships with vendors and suppliers, as both can report to business credit bureaus about how effectively you handle payments to them.

5. Stay on top of every business expense, even if you have trouble paying.

Nearly every small business owner encounters expenses that are difficult to pay on time. Owners who proactively communicate issues to creditors usually cause less damage to their credit profile.

"If you are in a situation where you cannot pay a creditor, be early and honest in reaching out and sharing a plan for repayment," Strathman says. "Ignoring the issue will not make it go away."

Lenders want to offer credit to small business owners. But all lenders need to see a credit profile and solid financial information, and likely a business plan, which shows you have the ability to manage credit. Take time to present your plan to potential lenders early, before you may be desperate for credit, and you may boost your opportunity for success.

Learn more about a lender's perspective: Watch our division lending manager, Mike Strathman, talk credit