One of the biggest advantages of getting a business credit card is that it lets you keep your personal and commercial finances separate. This makes it easier to stay financially organized, and it also protects you legally in various ways.
In spite of this, business credit cards can affect your personal credit score. How exactly do they do this, and doesn’t it defeat their primary purpose—keeping the two halves of your financial life separate?
Read on to learn how business credit cards affect your personal credit and how you can use this to improve your credit score.
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Why do business credit cards sometimes affect your personal credit?
Many people are surprised to learn that opening or using a business credit card can affect your personal credit.
This is a natural reaction; after all, your business credit and personal credit are different. You probably already know that using your business credit card contributes to your business credit score, which is distinct from your personal credit score.
However, personal lenders are still interested in how you handle your business debts, and vice versa. This means there’s some crossover between your two scores.
After all, as a business owner, the way you handle your commercial debts suggests something about how you’ll handle your personal ones. It makes sense for your business credit activities to have at least some influence over your personal (consumer) credit score.
Business credit requires a personal guarantee
What’s more, when you apply for a business credit card, you’ll almost always give something called a personal guarantee—a promise that if your business goes bankrupt, you’ll step in and pay off the outstanding balance on the card with your own funds.
This means your business lender will be interested in your own personal credit history. They want to know that even if your business fails, they’ll still get their money back.
Basically, you shouldn’t think of your business and personal credit as completely separate spheres. There’s some overlap between them, and they can affect each other.
3 ways a business credit card can affect your personal credit score
There are three ways business credit cards can influence your personal credit score:
- Initial credit application: Many business credit card issuers will check your personal credit when you first apply.
- Ongoing reporting: Some issuers (not all) will add your activity on your business card to your personal credit reports.
- Missed payments: Even if your issuer doesn’t do that, they might still report it if you miss or make late payments, which is bad news for your personal credit.
We’ll break down all three in more detail below.
Note that not all cards have each effect—it depends on your card issuer’s policies. We’ll provide a quick guide to several popular card issuers in the next section.
1. Your business credit card application may trigger a hard inquiry
Because you’re ultimately responsible for your spending on your business card (due to the personal guarantee that we mentioned above), there’s a good chance your business credit card company will check your personal credit when you apply.
They’ll do this by conducting a check known as a hard inquiry, which will affect your credit score. Hard inquiries lower your credit score by around 5 points, and this effect will last for 6 months to 1 year (although the inquiry itself will remain on your credit report for 2 years).
Provided you don’t incur too many hard inquiries by applying for a lot of cards in a short timeframe, this isn’t something you need to worry about—a credit score drop of 5 points is very small in the grand scheme of things. Just be aware of it so you’re not surprised when you apply for a business credit card.
2. Your business credit card activity may appear on your credit report
All business credit card issuers will report your activity to the commercial credit bureaus that produce the reports that create your business credit score. However, some also report to the consumer credit bureaus that produce your personal credit reports.
If your card issuer does this, your business credit card will affect your personal credit score just like a regular credit card.
How credit cards affect your credit score
To understand exactly how your business card will impact your score, you need to know how credit scores are calculated and what affects your credit score in the first place.
The truth is that most people don’t need to worry about that level of detail. You really just need to pay attention to the following:
- Paying off your debts promptly: The payment history on your credit cards is very important to your credit score. Paying off your debts in full and on time is good for your credit, whereas missing payments is harmful.
- Keeping your spending low: Your credit utilization rate, or the amount of your credit that you’re using, is very important to your credit score. Try to keep your spending under 30% of your business card’s credit limit, and under 10% if possible.
In general, if you spend in moderation and pay off your credit card in full every month, you can be confident your business credit card is helping your personal credit score instead of hurting it.
3. Your card issuer might report delinquent debts
Not all business card issuers will report your activity. However, even if yours doesn’t, they might still report it if you fail to pay off your debts on time.
If you do, the consequences will be the same as if you made a late payment on an ordinary credit card. A derogatory mark will show up on your personal credit report and damage your credit score.
The more payments you miss (and the later they are), the worse the damage will be.
Missing payments on your business credit card will also damage your business credit score, so needless to say, you should always pay your bills on time. It’s very important to stay on top of all of your credit accounts, both business and personal.
Which business credit card issuers report to the credit bureaus?
The table below shows several major business credit card issuers and what they report to the consumer credit bureaus (e.g., everything, only delinquent debts, or nothing at all.)
Business Credit Card Reporting Policies
| Card Issuer | Reported Activity |
|---|---|
| American Express | Defaulted debts |
| Bank of America | Defaulted debts |
| BBVA | No activity |
| Capital One | All activity |
| Chase | Defaulted debts |
| Discover | All activity |
| Citi | Defaulted debts |
Assume that all of the companies above will conduct a hard inquiry when you apply for a business credit card as well.
Is it better to get a business credit card that won’t affect your personal credit score?
Whether your business credit card will affect your personal credit shouldn’t be a significant consideration when you decide what card to apply for. It’s better to look at other features, such as your card’s interest rate and whether it offers any rewards that you want.
It might be disappointing to learn that your business card has the potential to hurt your personal credit score, but on the bright side, this will only happen if you mismanage your spending on the card.
In fact, if your business credit card affects your personal score, it can actually be a blessing in disguise. It means that you can use your business credit card to build your credit, and it provides an extra incentive to use the card responsibly.
