Key takeaways
- Business cards can have an effect on both personal and business credit scores, though not always.
- If an issuer reports your business credit card to consumer credit reporting agencies, it will affect your personal utilization ratio, payment history and other credit scoring factors.
- Most business card issuers require small business owners to sign a personal guarantee, which means you — and your personal credit score — are on the hook.
The intersection of personal and business credit is a curious one — particularly for small business owners who are just getting off the ground. Before opening a business credit card, many business owners may wonder whether a business credit card affects their personal credit. The fact is, total separation between your business and personal credit score is often wishful thinking.
The specific ways your business credit cards interact with your personal credit vary depending on factors like the type of business card you open and whether your business card issuer reports your card to consumer credit reporting agencies, as well as your payment history and other financial habits. Here’s how your business credit card use can affect your personal credit score:
How do business credit cards affect your personal credit?
From the moment you open a business credit card, you can start building your business credit — a separate score unique to your business accounts. Much like your personal score, your business credit score rises and falls according to the length of your credit history, credit utilization, payment history and other factors determined by the business credit reporting agencies.
Unlike personal scores, however, business scores can be accessed by anybody without the consent of the business. The way the scores are graded also differs, with most business scores reported on a 1 to 100 scale, while personal scores fall between 300 and 850.
Certain activities from some business cards affect both personal and business credit scores, while others will influence your business score alone. Additionally, business credit cards can appear on your personal credit report. This makes it important to comb through the details of every business card agreement. That way, you’ll know where your activity will be reported and how much influence it might have on your personal credit.
New credit inquiries
Applying for your first business card often requires a hard inquiry into your personal credit history. With nowhere else to draw from, potential lenders may look at anything you’ve used to prove yourself as a worthy (or unworthy) borrower — personal credit being the most obvious source.
Since hard inquiries are known to put a small dent in your credit score, expect a slight dip on your next credit report. As long as nothing else changes much, your score should get back to where it was within a year or less — although the hard inquiry could stay on your credit report for up to two years.
Credit utilization
Your credit utilization ratio is the total amount of credit you’re putting to use compared to the total amount of available credit you have across all lines of credit. Say you have three credit cards — each with a $5,000 limit. If you have a $3,000 total balance across those three cards, your utilization rate would be 20 percent.
Why is that relevant to your business cards? It’s because some issuers factor your business card into your personal utilization rate, while others don’t.
Make sure you know what you’re dealing with. Business cards with higher limits can more heavily influence the math that goes into your utilization rate. If you’re putting large expenditures on your business card — and your business card issuer reports to your consumer profile — it could throw off your rate. A rule of thumb is to keep your credit utilization below 30 percent.
Payment history
Much like with a personal credit card, your payment history is arguably the most important contributing factor to a strong business credit score. However, not all banks report both on-time and late business card payments to the credit bureaus. While some issuers will report that information, others only report negative information.
Check with your credit card company to understand how and where they report your business payment information.
Personal guarantees
For small businesses, providers will typically make you sign a personal guarantee for a business card, which is roughly like cosigning for yourself. A personal guarantee promises that if you fail to pay your debts on your business card, you — as an individual — are still on the hook. That gives your lender the right to go after your personal assets — all credit lines included.
You can find a few business credit cards with no personal guarantee. Corporate cards often fall into this category as well. As time goes on and your business builds a credit history of its own, your personal credit may become less important. However, the guarantee may still remain.
How business cards show up on your personal credit report
If an issuer reports your business credit card activity on your personal credit report, it will appear as just another credit card on your report. However, keep in mind that the information it reports could differ from what it reports related to your personal credit cards. For example, American Express only reports negative business card info, while Bank of America doesn’t report business card activity to personal bureaus at all.
In the case that an issuer does report your business card information to consumer bureaus, credit scoring models will factor that information into your credit score just like your personal information is considered. For instance, the payment history from your business credit card will impact your personal credit score similar to how the payment history for your personal credit cards will impact it.
Keep in mind: Check with your issuer to determine whether it reports business card info to business credit reporting agencies, the most common three being Dun and Bradstreet, Experian and Equifax.
Issuer policies for business credit card activity
Whether an issuer reports your business card information to the credit bureaus varies. It’s best to confirm with your issuer as policies can change at any time, but here is where major issuers stand as of publishing.
| Issuer | Activity reported to consumer bureaus |
|---|---|
| American Express | Yes, but only negative information |
| Bank of America | No |
| Capital One | Yes |
| Chase | Yes, if the account is delinquent |
| Citi | No |
| Discover | Yes |
| U.S. Bank | Yes, if the account is delinquent |
| Wells Fargo | No |
Can my employee cards affect my credit?
Yes, employee card purchases can affect your credit. As is the case with any authorized user situation, the primary account holder is ultimately responsible for any purchases made on the account, whether you make them yourself or your employee does so as an authorized user. That means that an employee running up charges on your business card could ding your credit if you can’t pay the bill.
Furthermore, being the authorized user on a small business card carries the same benefits and risks of being an authorized user on a personal credit card.
If the primary account holder has a solid credit history and responsibly handles the business credit card account, the authorized user could see a positive impact on their credit history as a result. Likewise, if the business credit card account falls into default, the authorized user could see a negative impact.
Corporate credit cards, however, don’t generally appear on personal credit reports and shouldn’t have an impact on your personal credit.
Should you get a business credit card?
None of the information above is intended to scare you off from applying for a business credit card — quite the opposite. Choosing a business credit card is a great option for small business owners who are looking to:
- Spread the costs of their large purchases out over time
- Take advantage of the larger credit limits offered by business credit cards
- Cover costs during seasons of low cash flow
- Earn rewards on expenses
- Provide employees with their own credit cards
More than anything, this is a reminder to stay aware of how closely intertwined your personal and business credit accounts can be.
From a behavioral standpoint, however, a business credit card won’t absolve you of any negative credit history you may have with your personal cards. A business credit card might make your financial situation worse if you’re struggling to:
- Keep your spending within your limits
- Pay your card balances on time
- Shave down your debts from other cards or loans
- Keep your personal credit score from falling
Keep in mind: A business credit card can be a valuable tool for business owners wanting to build credit for their growing business. A strong business credit score can mean easier access to financing, lower insurance rates and even more interest from business investors. Remember, investors can also access your business credit score.
The bottom line
If you decide applying for a small business credit card is the right step for your growing business, it’s important to understand how that may affect your personal credit history. By prioritizing on-time payments and steady credit utilization, you’ll be on your way to building strong business credit while protecting your personal credit at the same time.
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