There are many reasons to apply for a business credit card. They are generally easier to obtain than some small business loans, can help you build a business credit history, and you might be able to enjoy some valuable rewards and perks.
How do business credit cards affect your personal credit report?
Applying for and using a business credit card can impact your personal credit report depending on what you do with the card and the source of the card to which you make payments (we will cover that later).
The application process includes a hard inquiry
When applying for a business credit card, most card issuers will conduct a personal credit inquiry to verify your personal repayment ability.
According to FICO, each hard inquiry results in a drop of less than five points from your credit score, so it won’t have a significant impact. However, if you apply for multiple credit cards in a short period of time, it may have a cumulative negative effect on your credit score.
Most small business credit card issuers require a personal guarantee when you apply. This means that if your business cannot make the monthly payments, you will be responsible for paying them from your personal assets.
Some companies do not report to credit bureaus
Most major business credit card companies either do not report your balance or payments to consumer credit bureaus, or they only do so if a payment is overdue by more than 30 days. If the company reports one of these late payments, it’s likely that your credit score will drop.
Your payment history is the most important factor in your credit score, and even one late payment can significantly negatively impact your credit score and remain on your credit report for up to seven years.
But some companies do report to credit bureaus
Some well-known business credit card companies report all of your activity to consumer credit bureaus every month, just like your personal credit card companies do on those accounts.
The type of information they report may include your balance, credit limits, payment history, and all of these factors can affect your credit score.
Even if your company makes all payments on time, having a high credit utilization ratio (the amount of credit used compared to your credit limits) can negatively impact your personal credit score. Try to keep your credit utilization ratio below the maximum permissible percentage of 30%.
Which card companies report business credit card information?
Among the major credit card issuers in the United States, here’s what you can expect regarding the impact of your business card on your personal credit report:
| Card Company | When and what they report |
|---|---|
| American Express | If the account is not in good standing |
| Bank of America | If the account is delinquent |
| Barclays | May report in some cases |
| Capital One | All account information on most cards |
| Chase | If the account is more than 60 days late |
| Citi | Does not report |
| Discover | Reports all account information |
| U.S. Bank | Does not report |
| Wells Fargo | Does not report |
Note: The Capital One Spark Cash for Business card may report late payments, missed payments, and other violations.
How to improve your credit score using a business credit card
Although business credit cards are not primarily designed to help you build personal credit, obtaining a card from a bank that reports all your account activity to consumer credit bureaus can help you build your personal credit history.
If
If you want to follow this path, it is important to practice smart credit habits. The most important of these is to pay your bill on time every month, and preferably to pay it in full to avoid interest charges.
You should also strive to keep your credit utilization rate low. This can be difficult if your credit limits are low compared to what you need to spend on the card each month. If you expect to need to carry a balance or accumulate a high balance frequently, you may want to choose a card from a company that does not report your activity to consumer credit bureaus.
Source: https://www.thebalancemoney.com/how-business-credit-cards-affect-personal-credit-scores-5116316
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