Published in: Credit Cards | Nov. 20, 2018
By: The Ascent Staff
Business credit cards are a great way for small business owners to keep their business expenses separate from their personal expenses. They can also provide an easy way to give employees the ability to make business expenses without requiring you to reimburse them later through the use of authorized user cards.
But if you apply for a business credit card, you might be wondering if it will impact your personal credit report. Even if you have complete control of your personal finances, your business might hit a point where it needs to rely on carrying a balance on a credit card and you don't want that to affect your personal credit score.
The answer to the question is "it depends." This article, however, can give you the information you need in order to make the best decision about which business credit card to apply for.
There are several factors that go into determining your credit score: payment history, credit utilization, length of credit history, credit mix, and new credit. The factors that could be impacted by a new credit card account showing up on your personal credit report are credit utilization, length of credit history, and new credit.
If you plan to spend a lot more money on your business every month compared to your personal expenses, you could see a negative impact on credit utilization if a business account appears on your personal report. That said, it will increase your overall available credit, so it could potentially have a positive impact. Either way, it's going to be a major factor to consider, as credit utilization accounts for 30% of your credit score.
Additionally, a new account on your report will negatively impact your average age of accounts, a part of the length of credit history factor.
Regardless of whether the account appears on your personal credit report, the credit card issuer will still have to make a hard inquiry with one of the credit bureaus. That will have a small negative impact on the new credit factor.
The following is an incomplete list of which issuers report business cards to personal credit bureaus and which don't.
|Bank of America||No|
Data source: Doctor of Credit.
As long as you stay away from Barclaycard, Capital One, and Discover business credit cards, you'll see very minimal impact on your personal credit score.
That said, Capital One issues some of the best small-business credit cards, so it might be worthwhile if you don't plan on spending too much and hurting your credit utilization. After all, a large credit line with just a little spending could actually boost your credit score.
Just because a credit card is in your businesses name doesn't mean you're off the hook if you stop paying on time, start racking up interest, and eventually end up with a delinquent account.
Remember, most business credit card issuers will make a hard inquiry on your credit report. That's because you're still personally liable for all the credit your business uses.
While most issuers usually don't report a business credit card to your personal credit report, you might start to see the accounts on your report if you don't use them responsibly. American Express says it will report negative information about business accounts to personal credit reports. Chase and U.S. Bank are a bit more lenient, but will still report seriously delinquent accounts to personal credit reports.
You won't be able to hide behind your business when using a business credit card, so be sure you use it just as responsibly as you would a personal credit card. Make sure you're paying on time and staying below your credit limit. That will ensure your credit report stays clean, and it will help you qualify for a bigger line of credit for your business if you ever need it.
If you're using credit responsibly, you shouldn't be afraid of a new business credit card impacting your personal credit report. Focus on the card that offers the rewards and benefits you're most interested in.
As long as you're paying on time and keeping your credit card usage in check (things you should be doing with personal cards, too), it won't hurt your personal credit score if the business credit card account gets reported to the personal credit bureaus.
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