Does a Business Credit Card Affect Your Credit Score?
Harrison Pierce is a writer and a digital nomad, specializing in personal finance with a focus on credit cards. He is a graduate of the University of North Carolina at Chapel Hill with a major in sociology and is currently traveling the world.Read full bio
At a Glance
A business credit card can significantly affect your credit score, depending mainly on how it is used. If you use it responsibly and make payments in full and on time, then it can be a helpful tool to help improve your credit score. On the other hand, if you miss payments or max out the limit on the business credit card, then this could cause severe damage to your credit history.
It is essential to review your business’s financial record periodically to ensure that all payments are appropriately credited; accounting mistakes that are not caught promptly can be detrimental to your company’s success. Also, if each user of the company’s business cards has different spending habits and usage rules this should also be considered when evaluating its impact on overall finances and individual credit scores.
In this article, you’ll learn:
- What are business credit cards, and how do they work?
- How does a business credit card affect your personal credit?
- What information do credit card issuers report to credit bureaus?
- How to manage personal and business credit cards simultaneously?
- How can you use a business credit card to build personal credit?
- Is a business credit card right for you?
What are business credit cards, and how do they work?
Business credit cards are credit cards designed specifically for business purposes and offer features and benefits tailored to the needs of small businesses and corporations. They work similarly to personal credit cards, with a credit limit set by the issuing bank and the cardholder making purchases and incurring debt, which must be paid off in full or with monthly interest.
Business credit cards often offer rewards, like cash back or points, on business-related purchases, higher credit limits, and the ability to track employee spending. Additionally, they may provide additional benefits like travel insurance, purchase protection, and extended warranty. The applicant must have a good credit history and provide financial information about the business to get a business credit card.
How does a business credit card affect your personal credit?
A business credit card can affect your personal credit if you and your company are legally connected through the formation of a corporation or Limited Liability Company (LLC). This is because both business and personal credit cards are reported to the major consumer reporting agencies, so your payment and spending habits for both cards will be on your personal credit bureau file.
However, it is also important to note that by taking out a business card in your own name, like with no corporate entity or an LLC, you are essentially taking out a loan that could affect your personal financial situation. Therefore, it is crucial to think carefully before getting a business credit card and consider how it may impact any other debt you might have.
1. A new credit inquiry on application
When you apply for a business credit card, it generates a new inquiry in your credit report. This type of inquiry can affect you negatively by temporarily lowering your overall score, and it also has the potential to stay on your report for up to two years. This is why it is important to research all the different business credit options before deciding. Always read the fine print to ensure you understand the impact applying might have on your credit score.
Related: Do Credit Inquiries Affect Your Credit Score?
2. Affects your credit utilization
A business credit card can significantly affect a person’s credit utilization. This ratio is calculated by dividing all revolving balances by the total of all revolving credit limits. Having too high of an amount utilized can decrease a person’s credit score, making it more difficult to obtain loans, mortgages, and other lines of credit. Acquiring a business credit card may just be the answer to improve this ratio if used correctly and responsibly. Responsible use will include paying off the balance in full each month and not exceeding your respective limit. These behaviors are rewarded with improvements in your credit report, promoting financial stability and access to more significant amounts of available credit.
Related: How to Lower Your Credit Utilization Ratio?
3. Reporting delinquency
Business credit cards can directly impact personal credit if the account becomes delinquent. While business lines of credit are usually considered separate entities from personal credit, negative activity can be reported to your account and negatively impact your credit score. Business owners must remain vigilant regarding payment history, as even one delinquency can affect their individual creditworthiness. For this reason, business owners should create a repayment system that ensures regular payments are made on time and in full. With careful attention, they can safeguard their personal credit while leveraging their business credit card’s benefits.
What information do credit card issuers report to credit bureaus?
Credit card issuers typically report the following information to credit bureaus:
- Account information: This includes the type of account, the credit limit, and the date the account was opened.
- Payment history: This includes the timeliness of payments and whether any payments were missed or late.
- Credit utilization: This refers to the amount of credit used compared to the available credit limit. High credit utilization can negatively impact credit scores.
- Balance information: This includes the current balance on the account, as well as any outstanding debt.
- Credit inquiries: This refers to the number of times a credit check was conducted on the account and can indicate a higher level of credit risk.
It is important to note that credit card issuers may not report all this information to all credit bureaus and may only report it to one or two of the major credit bureaus. It is also essential to regularly monitor your credit reports to ensure that the information is accurate and up to date.
How to manage personal and business credit cards simultaneously?
Managing both personal and business credit cards simultaneously requires careful planning and organization. To effectively manage both types of credit cards, it is crucial to maintain accurate expense records and regularly check the balances and payment due dates. You should also create a budget to help keep your spending in line and pay off any balances in full each month to avoid paying interest and incurring debt. Additionally, regularly monitoring your personal and business credit reports can help you keep track of your credit utilization and identify any errors that may impact your credit scores.
1. Check your credit scores regularly
Managing both personal and business credit cards can be time-consuming and complicated. However, one of the best ways to simplify this process is to check your credit scores regularly. Doing so can ensure that all debts are being managed appropriately in both arenas – reducing stress and freeing up more of your valuable time for other endeavors. Checking also allows you to quickly identify any suspicious or fraudulent charges to address them appropriately and quickly. Nowadays, an abundance of services available will enable you to track all your accounts simultaneously, saving you from having to jump through hoops every time you need an update on how your financial obligations are performing.
Related: Does Checking Your Credit Score Lower It?
2. Use both credit cards responsibly
Let’s face it– sometimes it can be hard to navigate life and business when both require their credit card for purchasing. To keep your financial life organized, you must manage your credit cards responsibly. A great way to begin is by tracking your spending with a budgeting app or software. This will give you a better picture of how much you should allocate toward each card every month. Additionally, you can use one credit card solely for business while always paying off the other with personal funds. Finally, pay attention to special offers like cashback and rewards – once activated, they can be used strategically to improve the advantages of both cards. With some discipline and planning, managing personal and business credit cards side by side is more straightforward than one might think!
3. Consider large purchases carefully
When managing personal and business credit cards concurrently, it pays to use caution when making larger purchases. Since personal and business expenses must be separated for tax purposes and financial responsibility, it is vital to track each payment carefully. This can be done by merging the accounts to make all transactions visible. Additionally, take time to identify what items are classified as business expenses and limit buying these items on the personally linked card. Lastly, try to pay off each purchase shortly after making it to maximize use of both cards while protecting your financial well-being. By accounting for them this way, you will quickly learn how to manage personal and business credit cards confidently.
How can you use a business credit card to build personal credit?
A business credit card can be a handy tool for helping to build personal credit. By making regular, manageable payments on the card and maintaining a low balance, individuals can benefit from increased financial responsibility and boost their scores over time. Additionally, many business cards offer rewards and cash bonuses that can help offset some of the costs associated with using the card while providing another avenue to differentiate and add extra value beyond simply working to improve credit scores. With proper use, a business credit card presents an excellent opportunity to establish better financial security while also developing a positive credit history.
1. Make all payments on time
Making all payments on time is one of the most important elements regarding your credit. This is especially true if you have a business credit card; missing payments or paying late can have severe consequences that could affect your credit score for many years. Moreover, making payments on time helps maintain a good relationship with creditors and lowers the interest rate on future loans. Furthermore, it also indicates to any potential lenders that you are an individual who values responsibility and financial commitment. Hence, by making all payments on time on your business credit card, you can ensure that your personal credit remains healthy, further evidencing yourself as a reliable borrower.
2. Keep balances low when possible
Keeping a low balance on your business credit card is vital for improving personal credit. When trying to take out potential loans or open new lines of credit, lenders will investigate your current and past financial responsibilities to determine if you are a good fit. Paying off all or most of the balance each month shows that you are responsible with money – something any lender wants to see in an applicant. And since many business and personal expenses overlap, eliminating high balances from both sides can be beneficial for obtaining more beneficial loan offers in the future. Additionally, keeping a low balance also helps prevent making unnecessary purchases without knowing the total cost, which could lead to defaulting on payments and accumulating debt that can hurt your credit score significantly.
3. Use your business card wisely
Access to a business credit card as an entrepreneur can be both a blessing and a curse. Knowing how to use it correctly is essential to benefit from all its advantages. Start by making sure that you use the appropriate card– ensure your individual needs are considered, that payments are timely and secure and that there are options for tracking expenses. It’s also important to know your limits and never spend more than you can afford or need to. Finally, always read the terms and conditions of any offer carefully and ensure you understand the specific rules that apply to avoid interest fees or other unwelcome surprises. Business credit cards offer great potential, but they should always be used wisely.
Is a business credit card right for you?
A business credit card may be right for you if you want to manage your business expenses and improve your business credit. Business credit cards offer a variety of benefits, including the ability to track expenses, earn rewards, and separate business and personal expenses.
However, it is important to consider your business needs and financial situation before applying for a business credit card. Some factors to consider include the following:
- Your business’s revenue and expenses
- Your business’s cash flow
- Your personal and business credit scores
- Your ability to repay the debt
- The rewards and benefits offered by the credit card
If you are considering a business credit card, it is a good idea to compare different offers, read the terms and conditions carefully, and consult a financial advisor to determine if a business credit card is right for your business.
Business credit cards can show up on the personal credit report of the business owner if they are personally liable for the debt on the card. This is common in the case of sole proprietorships and unincorporated businesses, where the owner and the company are considered the same entity for credit purposes. In these cases, the credit activity on the business credit card will appear on the owner’s personal credit report.
However, if the business is a corporation or limited liability company (LLC), the credit activity on the business credit card may not appear on the personal credit report of the owner, as the business and the owner are considered separate entities for credit purposes.
Always check with the credit card issuer and the credit bureaus to confirm how business credit card activity will appear on your credit report. It is also essential to regularly monitor your personal credit report to ensure that the information is accurate and up to date.
Yes, you can get a business loan without affecting your personal credit by applying for a loan specifically for your business. Business loans can be secured or unsecured and are based on the financial health and creditworthiness of the business rather than the business owner’s personal credit.
Secured business loans require collateral, like equipment or real estate, to guarantee the loan. In contrast, unsecured business loans are based solely on the financial stability and creditworthiness of the business.
It is important to note that while a business loan may not directly affect your personal credit, the business’s inability to repay the loan could indirectly affect your personal finances, as you may be personally liable for the debt in some cases. It’s a good idea to consult with a financial advisor to determine the best option for your business.
It depends on the context. Personal credit and business credit both have their advantages and disadvantages.
Personal credit is typically easier to establish and can provide access to a broader range of credit products, including credit cards, personal loans, and mortgage loans. However, personal credit may not accurately reflect a business’s financial stability or creditworthiness.
On the other hand, business credit is specific to a business and provides lenders and suppliers with information about the financial stability and creditworthiness of the company. Building and maintaining good business credit can help a business secure more favorable loan terms and better interest rates.
Ultimately, personal and business credit is essential, and it is best to maintain good credit in both areas to maximize financial options and opportunities.
A good credit score for a business when applying for a credit card is typically 700 or above. However, this is not a hard and fast rule, as credit card issuers may have different requirements and may consider other factors, like the size and financial stability of the business, as well as the personal credit score of the business owner. It is always a good idea to check with the credit card issuer for their specific requirements.
Related: How to Check Business Credit Score