Do Business Credit Cards Affect Your Personal Credit Score?
Here's the skinny on how a business card can affect your personal credit score by card issuer, and why it matters.
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Business credit cards are for small businesses, but they can still affect your personal credit score and credit reports with the three big credit bureaus.
In most cases, whether you are approved for a business credit card depends on your personal credit history. When it comes to reporting your card to the credit bureaus, policies vary by institution, but a business credit card will typically only show on your credit report if you are delinquent on a balance.
Card issuers report business cards in different ways
Your experience as a business credit card user will ultimately depend on the bank that issues the card. The bank decides whether to report your card's activity to your personal credit reports, which ultimately affect your personal credit score.
The table below summarizes reporting activity by card issuer.
When it comes to personal credit reports, Experian, Equifax, and TransUnion are the "big three" credit bureaus to which your card is most likely to report. In business credit, Equifax, Experian, and Dun & Bradstreet are the big players. They keep records for business accounts and have their own scoring systems for commercial purposes.
There are a few ways these cards can affect your personal credit reports, even if they don't report to your personal credit history all the time:
Credit inquiries. When you apply for a business credit card, you can expect that the card issuer will always do a hard inquiry of your personal credit report, thus adding a credit inquiry to your credit report, consistent with what card issuers do with personal credit cards. If a card issuer asks for your Social Security Number (and they always do), expect a credit pull to be recorded.
Credit utilization. Some companies report information about your business credit card to the personal credit bureaus, even when your account is in good standing, so having a high balance can negatively affect your personal credit score. For this reason, these banks may not be the best fit for business owners who plan to use a business card to float large amounts of expenditures at any given time. That said, utilization is reported once per month, so having a high utilization ratio can be "fixed" by paying down a balance and keeping it low for a month's time.
Late payments and delinquencies. Some companies will report your business card account to your personal credit bureaus only if you are not paying your bills on time. But any business credit card can hurt your personal credit score if it goes into default and the account is sold to collections or pursued in court. To put it bluntly: A business card is not a license to borrow money without recourse.
Importantly, whether a business card reports to your personal credit bureau all the time seems to have an impact on acceptance rates and credit limits. For example, one company reports to personal credit bureaus, but it also offers business cards to borrowers who have less-than-excellent credit scores -- something few other card issuers do.
Furthermore, business card issuers consider your personal credit history when deciding to extend your business a line of credit, so it's possible to get a business credit card account even for a new business with little operating history.
Why you should apply for a business credit card
Business credit cards aren't just a marketing ploy. There are tangible benefits that business cards offer that make them better suited for business users than personal credit cards. Here are some of the features of the best business cards out there:
Business-friendly rewards. Not only do business cards boast some of the largest sign-up bonuses, but they also offer bonus rewards for common business expenses such as travel, shipping, utility bills, and online advertising, to give a few examples. Where bonus categories for personal cards are typically capped to $1,500 or $2,500 of quarterly spending ($6,000 to $10,000 per year), many business cards pay bonuses on up to $150,000 in annual spending.
Better bookkeeping. Separating your personal finances from your business finances is important for keeping good records. Having a card that you use solely for business purchases is a good way to do that. Plus, as a rule, business cards simply have better reporting tools to help you track how your business spends money.
Multiple authorized users. It's easy to add an authorized user to a business card, which allows you to give a business credit card to trusted employees so they can make purchases directly to the business card account, eliminating payroll complications that come with reimbursing employees for business purchases. Many cards also split purchases by user, so you can keep tabs on how each card is used from month to month.
Business perks. Most personal cards offer perks like rental car insurance or extended warranties that specifically exclude business expenditures from free coverage. For example, even no-annual-fee business cards offer primary coverage for rental cars, which you'll only find on personal cards that have annual fees of $95 and up.
Building a bank relationship. Small business owners know how difficult it can be to finance their small business. A business card offers the opportunity to build a relationship with a banking institution that may later help you get a credit line to finance inventory, a lease for expensive equipment, or a loan to purchase real estate for your business.
It's all about trade-offs. A few card issuers always report business cards on personal credit reports. Some only report when you're past due on a payment. But the benefits of having a business credit card can outweigh the disadvantages of having a business card on your credit report.
So long as you don't constantly carry a large balance on a business card or pay your bills late, having the card won't hurt your credit report, and it can afford you some extra perks and benefits you won't get with a personal credit card.
The bottom line is this: If you need a credit card for your small business, it's hard to see how a business card geared for commercial users won't be a better solution than a personal credit card designed for ordinary consumers.
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