Building Credit for Business and Personal Needs
What is the best way to build new credit references business and personal? what are the best credit cards for building a credit rating?
Credit for both business and personal purposes requires a dual-track strategy. They are interconnected, especially for small business owners, but should be managed separately for the best results and financial protection.
Here is a comprehensive guide broken down into two main parts.
Part 1: The Best Way to Build New Credit References
The fundamental principle for both business and personal credit is the same: Demonstrate that you can borrow money and pay it back responsibly over time.
For Personal Credit:
This is the foundation. Lenders will almost always check your personal credit, especially when you’re starting a business.
- Get a Secured Credit Card: This is the #1 tool for building credit from scratch.
- How it works: You provide a cash deposit (e.g., $200-$500) that becomes your credit line. The bank reports your payments to the credit bureaus (Equifax, Experian, TransUnion). After 6-12 months of on-time payments, many cards will “graduate” you to an unsecured card and return your deposit.
- Why it’s best: It’s low-risk for the lender, making it easy to get. It functions exactly like a regular card for building credit.
- Become an Authorized User: Ask a family member (e.g., parent or spouse) with a long, positive credit history to add you to their credit card account.
- Benefit: The entire history of that card can be added to your credit report, giving your score an immediate boost.
- Caution: This only works if the primary user has good credit habits. Any late payments or high balances will also hurt your score.
- Get a Credit-Builder Loan: These are small loans offered by credit unions and community banks.
- How it works: The lender places the loan amount (e.g., $1,000) into a locked savings account. You make fixed monthly payments for 6-24 months. Once paid in full, you get the money (plus any interest earned). Your payments are reported to the credit bureaus, building a positive history.
- Apply for a Store Credit Card: These are often easier to get than major bank cards.
- Caution: They typically have very high interest rates and low limits. Use this strategy sparingly. Only get one, make a small purchase each month, and pay it off in full.
- The Golden Rules for Building Personal Credit:
- Pay On Time, Every Time: Your payment history is the most important factor (35% of your FICO score). Set up autopay for the minimum payment at a minimum.
- Keep Your Credit Utilization Low: This is the second most important factor (30%). Aim to use less than 30% of your total credit limit, and ideally below 10%. For example, if you have a $1,000 limit, try not to have a balance over $300 at the end of the billing cycle.
- Don’t Apply for Too Much Credit at Once: Each application causes a “hard inquiry,” which can temporarily lower your score.
For Business Credit:
The goal here is to separate your business’s financial identity from your personal one. This protects your personal assets and credit score.
- Lay the Legal Foundation: You cannot build strong business credit without this.
- Incorporate Your Business: Form an LLC, S-Corp, or C-Corp. A sole proprietorship does not create a separate legal entity.
- Get an EIN: Get a free Employer Identification Number (EIN) from the IRS. It’s like a Social Security Number for your business.
- Get a Business Phone Line: A dedicated, publicly-listed business number.
- Create a Business Bank Account: Use your EIN and business formation documents to open an account in your business’s name.
Establish a Business Credit Profile:
Register with Business Credit Bureaus: The main ones are Dun & Bradstreet (D&B), Experian Business, and Equifax Business. For D&B, you need to get a free D-U-N-S Number.
Get “Trade References”: This is the business equivalent of a credit card. Establish credit with vendors, suppliers, or service providers (e.g., your web host, office supply store, shipping company) that report your payment history to the business credit bureaus. Not all do, so you must ask. Start with Grainger, Uline, or Summa Office Supplies.
Get a Business Credit Card:
Use your EIN and Business Revenue: As your business credit is built, you may qualify for cards based on your business’s financials.
Personal Guarantee: Initially, you will almost certainly have to provide a “personal guarantee” (PG), meaning you are personally liable if the business defaults. This links the card to your personal credit. The goal is to eventually get cards without a PG.
Part 2: Best Credit Cards for Building a Credit Rating
Here are specific card recommendations, categorized by your starting point.
For Building Personal Credit (No Credit/Poor Credit)
- Discover it® Secured: Widely considered the best secured card.
- Why: It offers cashback rewards (2% at gas stations/restaurants, 1% elsewhere), which is rare for secured cards. It automatically reviews your account for graduation to an unsecured card after 7 months.
- Capital One Platinum Secured: A great alternative.
- Why: Capital One may offer a credit line higher than your deposit (e.g., get a $200 line with a $49 or $99 deposit) if you qualify. It’s a straightforward card with a path to upgrade.
- Chime Credit Builder Secured Visa® Credit Card: A unique and effective option.
- Why: It’s not a traditional card. You load money onto your Chime checking account, and that amount becomes your “credit limit.” There are no interest charges or annual fees, and it reports to all three bureaus. It forces you to spend only what you have.
For Building/Establishing Good Personal Credit (Fair/Good Credit ~670-739 FICO)
Capital One QuicksilverOne Cash Rewards Credit Card:
- A good first unsecured rewards card.
- Why: Earns a simple, unlimited 1.5% cash back on every purchase. It has a $39 annual fee, but the rewards can outweigh it if you use it responsibly.
Capital One Platinum:
- A no-frills unsecured card.
- Why: No annual fee and a good tool for continuing to build history after graduating from a secured card. Capital One is also known for providing credit line increases after a few months of on-time payments.
Chase Freedom Unlimited® or Chase Freedom Flex®:
- Excellent cards to grow into.
- Why: These are premium cards with strong rewards. You typically need a FICO score over 690 and at least one year of credit history to qualify. They are fantastic long-term cards to “graduate” to.
For Building Business Credit (Using Personal Credit as a Backing)
American Express Blue Business Cash™ / Blue Business Plus™:
- Excellent for new businesses with good personal credit.
- Why: Amex uses a “charge card” model for some products, which can help with utilization since they often have no pre-set spending limit (though you must pay in full each month). They are generous with initial limits and have strong rewards. Your personal credit will be checked.
Chase Ink Business Unlimited® / Ink Business Cash®:
- Arguably the best all-around business cards.
- Why: No annual fee, valuable rewards (cash back or Ultimate Rewards points), and a strong sign-up bonus. Chase values your existing relationship with them (your personal banking/credit history).
Capital One Spark 1% Classic:
- Designed for new businesses with fair personal credit.
- Why: This is Capital One’s entry-level business card. It’s easier to qualify for than the Amex or Chase cards if your personal credit is only “fair.” It has no annual fee the first year, then $95.
Summary and Final Checklist
- Start Personal: Build your personal credit first using a secured card or credit-builder loan. It’s the key that unlocks everything else.
- Foundational Business Steps: Incorporate your business, get an EIN, and open a business bank account.
- Start Small with Business Credit: Get net-30 accounts with vendors like Uline that report to business bureaus to create an initial profile.
- Get a Business Card: Apply for a business credit card, using your strong personal credit as a guarantee. Use it for all business expenses and pay it off monthly.
- Practice Perfect Habits: Always pay on time and keep your credit utilization low, for both personal and business cards.
By following this dual-track approach, you will systematically build strong, separate credit profiles that will save you thousands of dollars in interest and give you access to capital when you need it.
Disclaimer: Credit card offers change frequently. Please review the latest terms, conditions, and annual fees on the issuer’s website before applying.
Best for No Credit / Building from Scratch
These are primarily secured credit cards, which require a refundable security deposit.
- Discover it® Secured
- Best For: Overall best secured card due to its rewards and path to graduation.
- Key Features: Earns 2% cash back at Gas Stations & Restaurants (on up to $1,000 in combined purchases each quarter) and 1% on all other purchases. Discover automatically reviews your account to transition you to an unsecured card after 7 months.
- Official URL: https://www.discover.com/credit-cards/secured/
- Capital One Platinum Secured Credit Card
- Best For: Those who may qualify for a higher credit line than their deposit.
- Key Features: You may be eligible for a $200 credit line with a $49, $99, or $200 deposit. It’s a simple card with no annual fee and a clear path to building credit and potentially upgrading.
- Official URL: https://www.capitalone.com/credit-cards/secured-platinum/
- Chime Secured Credit Builder Visa® Credit Card
- Best For: A unique, fee-free approach that works like a secured debit card.
- Key Features: Requires a Chime Checking Account. You “secure” the card by moving money into your Chime Savings Account. There are no annual fees, no interest charges, and no credit check to apply. It reports to all three major bureaus.
- Official URL: https://www.chime.com/credit-builder/
- U.S. Bank Secured Visa® Card
- Best For: Those who prefer a major bank and may want to eventually upgrade into U.S. Bank’s other card products.
- Key Features: Offers the potential to earn rewards (once you qualify) and may be considered for an unsecured card after 12 months of responsible use.
- Official URL: https://www.usbank.com/credit-cards/secured-card.html
Best for Fair / Average Credit (Building Towards Good/Excellent)
These are unsecured credit cards for when you have a short credit history or a “fair” score.
- Capital One QuicksilverOne Cash Rewards Credit Card
- Best For: Your first unsecured card that earns simple, flat-rate cash back.
- Key Features: Earns an unlimited 1.5% cash back on every purchase. This card has a $39 annual fee.
- Official URL: https://www.capitalone.com/credit-cards/quicksilver-one/
- Capital One Platinum Credit Card
- Best For: A no-annual-fee unsecured card to continue building credit after a secured card.
- Key Features: No annual fee and access to a higher credit line after making your first 5 monthly payments on time.
- Official URL: https://www.capitalone.com/credit-cards/platinum/
- Petal® 2 “Cash Back, No Fees” Visa® Credit Card
- Best For: Those with a thin credit file, as it may consider your banking history (like income and spending) in the application.
- Key Features: No annual fee and no fees whatsoever. It offers cash back rewards (1% back on all purchases, earning up to 1.5% back on eligible purchases after making 12 on-time monthly payments).
- Official URL: https://www.petalcard.com/
Best for Building BUSINESS Credit (Using Personal Credit)
For true business credit cards, your personal credit will be checked and is a significant factor in approval.
- Chase Ink Business Unlimited®
- Best For: Simple, flat-rate cash back on all business spending.
- Key Features: No annual fee. Earns unlimited 1.5% cash back on every purchase made for your business.
- Official URL: https://www.chase.com/business-credit-cards/ink/unlimited
- American Express Blue Business Cash™
- Best For: Everyday business expenses with a simple cash-back model.
- Key Features: No annual fee. Earns 2% cash back on all eligible business purchases on up to $50,000 per calendar year, then 1%.
- Official URL: https://www.americanexpress.com/us/credit-cards/business/business-credit-cards/blue-business-cash-american-express-credit-card/
- Capital One Spark 1% Classic
- Best For: New businesses with “fair” personal credit.
- Key Features: Designed for businesses that are still building credit. No annual fee the first year; $95 after that.
- Official URL: https://www.capitalone.com/small-business/credit-cards/spark-classic/
Final Pro-Tips Before You Apply:
- Check Your Credit Score First: Use a free service like AnnualCreditReport.com to see your reports or platforms like Credit Karma or your bank’s service to see your score. Know where you stand.
- Pre-Qualification is Your Friend: Many issuers (like Capital One, Discover, and American Express) have online pre-qualification tools. These use a “soft inquiry” that does not affect your credit score to show you which cards you’re likely to be approved for.
- Read the Terms: Always understand the Annual Percentage Rate (APR), annual fees, and other charges before applying.
Start with the secured cards if you are new to credit, use the card responsibly by paying off your balance in full each month, and you will be on your way to a strong credit rating.
