Most people that own small businesses have a separate credit card for their business expenses, as this allows them to keep their business transactions separate from transactions they use for their personal life. This is an easy way to ensure the lines between your business and personal money are not overlapping. Personal and business credit cards are different, but they work hand in hand when it comes to your credit score.
Some people rightfully wonder if their business credit card will affect their credit score. You always want to make sure your credit score is the best it can be, as this allows you to take out loans, get a mortgage, and make other financial transactions. This guide will cover how business credit cards affect your credit, the differences in cards, and how you use them.
Will my business credit card affect my credit score?
In a simple answer, yes, your business card will affect your credit score. How much it affects your credit score will depend on a few things, including:
- If the business credit card issuer checks your credit report, resulting in a hard credit inquiry which can drop your score by a few points
- If the business account appears on your credit report, this causes your credit utilization to increase
- If you make any late payments or miss them completely
- Your credit utilization rate on your business credit card and how this relates to your overall spending habits
How business cards can affect personal credit
In some way or another, your business card will probably affect your credit. However, the degree to which it will affect it differs for everyone. It also depends on how you use your credit cards and whether you make payments on time.
Business credit card issuers need to know whether they want to approve you for their credit cards. So, they use your credit to see if they can extend approval or not. Other than the initial check, most business credit card companies only report to the personal credit bureaus if you have done something negative on the account like missed several payments.
Paying the business credit card on time
Just like with your personal credit card, you have to make sure you are making all payments on time, or it can seriously affect your credit report. If you make late payments, the credit card issuer can report the late payment to both your business credit card bureau and the personal credit card bureau. This means both your credit reports will take a hit. Late payments can cause serious issues, and they are one of the worst things you can do for your credit score, so try and make payments on time as much as you can.
Payment history is worth 35% of your FICO score. When you make late payments and continue to do so for 30 days or more, you’ll see that your credit score will take a sharp drop. If you struggle to make timely payments, many credit card companies offer financial relief programs. You can contact the company and see if they have any programs to offer you to minimize your monthly payments and get back on track.
The account and your credit report
Most issuers of these cards will report to at least one of the reporting agencies every month. This includes bureaus like Experian and Equifax. Also, some business credit card companies send reports to the personal credit bureaus. If your card issuer does this, the business credit card will show on all your personal credit card accounts.
So, everything you do on the business credit card will impact your personal credit card reports and score. Before opening a business credit card, it’s always worth asking the company if they will be reporting to your personal credit card bureau or not.
Keep in mind that having your business credit card on your personal account is not always bad. However, you will need to take extra care to make all payments on time and ensure you are keeping your accounts in good shape.
Having another credit card on your report can help you build a better personal credit score because the account will grow older eventually and show that you can keep track of and make payments on multiple cards.
It can also have a significant negative impact if you stop making payments and the credit card goes to collections. It could also have an adverse effect if you have a high balance on your card and the balance stays very close to the upper limit.
Is the issuer going to check your personal credit report?
When you apply for a credit card, the business card issuer will probably check your personal credit report. This will be a hard credit inquiry. The impact is usually small, but your credit score will drop by a few points. The drop is usually temporary, and it will go away. Most of the time, a hard inquiry will stay on your credit report for about 12 months. Most hard checks don’t matter as long as you make payments on time and keep your credit utilization low. Don’t be afraid to apply for a new credit card, especially if you are not applying for several at once. Always apply to business cards that you are prequalified for as well, as there is a better chance that you will be approved for these, and avoiding the hard check will be worth your while.
Credit utilization on your business card
If your business credit account is on your personal account, then the credit card balance will show on your personal credit account. The business credit card balance will factor into your credit utilization rate. When you have a high credit utilization ratio, this can negatively affect your score because it shows you are approaching the limit of the credit card and spending quite a bit of money on the credit card.
Which companies report to the credit bureaus?
If you are thinking of applying for a business credit card, you might be wondering which of the business credit card issuers will report to the consumer credit bureaus, which are the ones in charge of personal credit accounts. In most cases, you need to ask the credit card issuers directly, as they can change their policies anytime. However, here is a quick guide on the most commonly used business credit card issuers and if they report to the bureaus or not:
- American Express: Only reports negative activity
- Bank of America: Reports nothing
- Capital One: Reports all activity
- Chase: Only reports negative activity
- CitiBusiness: Reports nothing
- Discover: Reports all activity
- PNC: Reports nothing
- Wells Fargo: Reports nothing
In general, most card issuers only report negative activity. So, you can avoid reports by ensuring that your credit utilization ratio is low and you make all payments on time.
Should I get a business credit card?
After reading that a business credit card can affect your personal credit score, you might be wary of getting one. Deciding whether to get a business credit card is a personal decision. However, as long as you are using it wisely and not missing payments, business credit cannot hurt your personal credit line.
Here are some reasons a business credit card might be a good decision for you:
- Separation of your finances. You no longer have to worry about accidentally using business money for a personal purchase. You can easily separate all your expenses.
- Better business credit rating. When you have a good business credit rating, you can easily borrow money if you need a loan or financial help for the business in the future.
- Get rewards. Most business credit cards offer great rewards, including earning miles for flying, getting points to spend at restaurants or supermarkets, and getting cash back on regular purchases you make every day.
- Better cash flow. Most business credit cards offer a grace period where you can use the credit card interest-free. This is a great way to use the credit card to make large purchases on items you may need for the business. Just make sure to pay the balance back before the grace period ends.
How to balance the use of your business credit and personal credit
If you have decided to get a business credit card, make sure to balance the use of it with your personal credit card to keep the credit utilization ratio as low as possible.
Use both cards responsibly
Ensure you never go over the limit of either card. Keep the balances as low as possible and make payments on time or early. Pay off purchases as soon as you can so that the balances stay well below the recommended usage.
Check your credit score often
Anytime you have a credit card or a loan, you need to make sure you check your credit score often. This allows you to see where you stand and also ensures there are no false reports that could be bringing your credit score down.
Make sure you check your business credit card score and your personal credit score. Keeping track of both is key.
Think before making purchases
If your business credit card has a high limit, you might be tempted to make large purchases. If your business needs an expensive item, you can use a credit card, but make sure you have a financial plan to pay the large amount back.
Just because it’s a business expense doesn’t mean you should max out the credit card and carry a huge balance for a long time. Don’t use all your available credit just because it’s there.
If you need money for your business, taking a small business loan is often a better idea than using a credit card. Business loans have better interest rates and can offer better repayment terms. All businesses need some start-up money; you just need to consider the best way to get the money you need.
Watch your spending habits
If you have poor personal spending habits, try not to let them affect your business credit card. You might be tempted to use a business credit card to make personal purchases. If that’s the case, getting another credit card, even if it’s for your business, might not be the best idea.
Instead, you might also want to consider getting a business line for your assistant or someone else in the company if you feel like you will start overspending or using the business credit card for personal expenses. Personal business loans might also be a better option for those who don’t feel comfortable having another credit card.
Will my business credit card affect my personal credit line? Ways you can make sure the effects are not negative
In most cases, the effect of your business credit card on your personal credit will be negligible. The only time it might have a large impact is if you miss several payments or if you increase the credit utilization ratio. You can ensure your personal credit is not being affected by using the card wisely by making payments on time and not overspending.