Last Updated on December 21, 2022 by Selina Parker
Do you have to think about personal credit reports and scores when you do business? Yes. If you do not keep personal and business finances in check, it can cause problems for both.
WHAT IS A BUSINESS CREDIT CARD?
Keeping your personal and business credit separate is essential. Your business credit score measures how well you manage your business finances, not personal ones.
Business credit cards work similarly to personal credit cards and are available on most card issuers and banks. It is for business-related purchases, such as office supplies or travel.
Like regular credit cards, business credit cards come with a limit that you can borrow up to, and you need to pay over time with interest.
You’ve probably noticed that business credit cards offer more benefits than personal credit cards, such as higher rewards rates and credit limits, useful organizational features like spending reports, and attaching memos, PO numbers, or line items to purchases.
Separating your business and personal spending is a good idea because it makes filing taxes more accessible and can help keep business and individual credit scores healthy.
HOW DO BUSINESS CREDIT CARDS AFFECT PERSONAL CREDIT
But do business credit cards affect personal credit history? The answer to this question depends on how you use them. Here are ways how a business credit card can damage personal credit.
CREDIT CHECK WHEN YOU APPLY
When you apply for a business credit card, the card’s issuer will look at your company’s history and personal credit. It could include performing a rigorous credit check of personal credit payment history, resulting in a few points deducted from your credit score.
Most lenders require a personal guarantee when applying for a business credit card. You may be held personally responsible for the debt if your company fails to pay.
ONGOING CREDIT UTILIZATION
The primary consumer credit bureaus will receive all of your credit card activity, including your credit usage ratio, calculated by dividing your balances by your credit card limits.
In other words, if you rack up a large credit card bill on your company’s credit card, it might affect your credit.
MAXING OUT YOUR CARDS
If you max out your business credit card and can’t pay it off right away, this will also hurt your credit score. According to many financial experts, maintain your credit card utilization below 30% across all of your cards because business credit bureaus will also review this. Due to their higher credit limits, business credit cards may make this easier.
MAKING LATE PAYMENTS
Late payment will harm your credit score. Delinquent payments that reflect on your credit history could make it difficult to borrow money in the future.
YOU ARE NOT REPORTING THE RIGHT AMOUNT OF CREDIT
Suppose you do not report your total available credit. It might affect your business credit scores because lenders (and even landlords) consider this when evaluating how much money they can depend on you to pay back promptly. It will hurt both your personal and business credit report.
To summarize, do business credit cards affect personal credit? Yes, but it depends on your business credit card activity.
Suppose you do not separate your business and personal spending. It can damage both of these important financial documents that lenders look at when deciding whether to do business with you.
THE BENEFITS OF USING A BUSINESS CREDIT CARD
BUILDS YOUR BUSINESS CREDIT
A good business score is essential for business owners because it can help you do financial transactions with other companies, such as getting utilities or setting up contracts. It will be an advantage if you plan to apply for a loan or a line of credit to expand your business.
Business credit cards offer higher cash-back rates than personal credit cards, and many of them provide cardholders with travel points that they can redeem through the issuer’s travel portal.
OFFERS BETTER WELCOME BONUSES
Business credit cards frequently provide bigger sign-up bonuses. The Chase Ink Business Cash® card, for example, gives you $750 when you’re accepted. The American Express Business Platinum Card® deposits 100 000 bonus Membership Rewards points into your account.
However, most company cards will need a higher spending requirement to receive the welcome bonus, so make sure you understand the restrictions.
IT OFFERS MORE PROTECTION THAN PERSONAL CARDS
Many of these cards offer protection against fraud and identity theft which is essential for any small business owner because it is prevalent for these crimes to occur.
GET BETTER INTEREST RATES
You’ll get a better interest rate than a personal card because businesses typically have higher income levels and can do more long-term financial planning than an average person.
HOW TO USE YOUR BUSINESS CREDIT CARD TO BUILD PERSONAL CREDIT
ALWAYS PAY ON TIME
Payment history has a significant impact on personal credit ratings. It is the key to maintaining a good credit score.
KEEP YOUR BALANCES LOW EVERY MONTH
Keep your balance below 30% of your limit because your utilization ratio will matter when calculating your credit score. If you have a business card with a high limit, this will be easier to do.
DON’T OVERUSE IT
Maxing out your business card can damage your personal credit score as well. You don’t want any late payments or negative marks on your credit report.
SUBMIT ACCURATE INFORMATION
Ensure you report your entire business and personal credit limits to the credit bureaus. It will help maintain an accurate representation of your borrowing potential.
There are positive and negative impacts of using a business credit card on personal credit reports. It is essential to know and understand these impacts before deciding if getting a business card is the right decision.
By following these simple tips, you can make sure that using a business card will only help improve your credit rating.
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ABOUT THE AUTHOR
“What began as a life and career coaching services company to aide entrepreneurs through the early-stage challenges and tough transformations of starting a social venture has evolved over the years to include mergers and acquisitions, organizational consulting, and business growth advisory services to mission-driven organizations that strive to improve access to basic physiological, safety, and security needs while increasing their profit margin. Clients include founders and organizations with the purpose of addressing deficiencies in delivering quality healthcare and mental health services, sufficient employment, access to clean water and air, safe shelter, adequate food, and more.”