Mitigating A Company Credit Card’s Influence On Your Credit
To reduce the influence of a company credit card on your credit, there are three actions you can take:
Ultimately, for individuals, using a corporate credit card is a much smarter financial decision than relying on a personal card and company reimbursements.
Its Harder To Track Employee Expenses
You probably wont want to give your employees your personal credit card. But most business credit cards allow you to add employee credit cards for free. When your employee is issued a card, each employee will receive a unique credit card number. This makes it simple to know who spent what each month. Plus, some banks allow you to set individual credit limits on each card so employees wont have access to your entire credit limit.
Using Your Business Credit Card
Different lenders have varying policies when it comes to reporting to the three consumer credit bureausTransUnion, Equifax, and Experian. For example, heres how some well-known issuers are known to handle business credit card activity as of June 2021:
- American Express: Reports to consumer credit bureaus when in poor standing
- Bank of America: Reports to consumer credit bureaus if delinquent
- Capital One: Always reports to consumer credit bureaus possible exception for Spark credit cards
- Chase: Reports to consumer credit bureaus if delinquent over 60 days
- Citi: Only reports to business credit bureaus
- Discover: Always reports to consumer credit bureaus
- Wells Fargo: Only reports to business credit bureaus
While choosing brands like Citi and Wells Fargo will mainly affect your business credit, companies such as Capital One and Discover can impact your personal score for better or for worse.
As a cardholder, you should look into your credit card issuers policies to see how your usage may affect your personal credit score.
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Business Credit Cards Have Different Bonus Categoriestargeted To Businesses
Rewards credit cards have bonus categories based on the customer they are targeting. Personal rewards credit cards often earn additional points for travel, dining or grocery purchases. Business rewards credit cards target categories where businesses spend the most, such as office supplies, telephone and internet service and online advertising. Using a business credit card for your business expenses allows you to earn additional miles and points where you spend the most.
Weakens Legal Protections For Corporations And Llcs
In order to keep the legal protections against lawsuits as a corporation or LLC, you must maintain a separation between your personal life and business life. Mixing your personal and business finances together erodes those protections. Smart attorneys can use this as an opportunity to pierce the corporate veil to go after your personal assets when they have a judgment against your business.
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What’s The Right Credit Card For Your Business
Ultimately, there is no one right answer. Obtaining a business card is within reach for business owners of all sizes. And having access to a business line of credit does offer benefits, and prevents a lot of headaches that come with using a personal credit card for business expenses.
When you decide to switch to a business credit card be sure to look for the solution that fits your business best, and will grow as you do. Usually this means:
- As many or as few cards as you need, depending on your team size
- Easy payment tracking, without waiting for the card statement each month
- Fraud protection and the ability to spot duplicate payments
- Automated receipt collection
- Real-time payment reconciliation, integrated with your accounting systems
In the end, you want smarter, safer spending at work. So finds the cards that offer just that.
Do I Need A Business Card That Wont Affect My Personal Credit
If youre worried about potential hiccups with your business credit card, you can look into cards that wont report to the personal credit bureaus. But serious delinquencies late payments of 60 days or more, defaulting on your account or reports to collections may end up on your personal credit history regardless.
If youre confident in your businesss financial health, instead focus on weighing cards that can best benefit and maximize your business spending, whether with a low interest rate, a balance transfer promotion or tiered rewards.
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Impact Of Business Credit Cards On Personal Credit
When an applicant signs a personal guarantee for a business credit card the card issuer is legally allowed to report the activity on the account to the three consumer credit reporting agencies Equifax, Trans Union, and Experian.
Small business entries will be considered by credit scoring systems just like any other credit obligations. Credit scoring models do not differentiate between personal and business accounts in any way.
Normally business accounts are not reported to a consumers personal credit reports as long as the payments are being made responsibly and in a timely manner.
Of course, there are some exceptions to that rule and some small business credit card issuers will report monthly activity, even while the account is in good standing.
If a business credit card goes into default then its almost certain to show up on the credit reports of the individual who signed the personal guarantee when initially opening the account. If the defaulted business card is reported on a consumers credit reports then there will likely be a negative impact on his or her scores.
Using A Business Credit Card To Build Your Personal Credit
If youre concerned about the potential impact a business credit card could have on your personal credit, there are things you can do to make it a good experience instead of a bad one.
The key is to practice the same good credit behaviors with your business account that you do with your consumer accounts. Here are just a few.
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Does Having A Corporate Credit Card Help Your Credit
Having a corporate credit card should not affect your personal credit, as corporate credit cards don’t require a personal guarantee. However, a corporate credit card can impact your business credit score. With responsible use, it can improve your business credit score and with misuse, it can harm your business credit score.
The information related to American Express Blue Business Cash Card and The Hilton Honors American Express Business Card has been independently collected by ValuePenguin and has not been reviewed or provided by the issuer of this card prior to publication. Terms apply to American Express credit card offers. See americanexpress.com for more information.
These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.
Advertiser Disclosure: The products that appear on this site may be from companies from which ValuePenguin receives compensation. This compensation may impact how and where products appear on this site . ValuePenguin does not include all financial institutions or all products offered available in the marketplace.
Use Debit Facilities Wisely
Just because your debit card can be used like a credit card doesnt mean you should be using the debit function for business purchases. If you use your debit card for these purchases, your money can be tied up for much longer than it needs to be and often in excess of the actual purchase price.
To prevent purchases for your business from tying up your personal funds, use the credit card payment option even if youre using your debit card.
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A Credit Inquiry When You Apply
When you apply for a business credit card, the card issuer may consider both your businesss track record and your personal credit. This could include running a hard credit check on your personal credit, which could drop your credit scores by a few points.
Many business credit card issuers require that you sign a personal guarantee when you apply. This means that if your business defaults on payments, you can be held personally liable to repay the debt.
What Is A Business Credit Score
Now that we see how important business credit scores are, lets define them: A business credit score is a number, representing the likelihood your business will be approved for funding.
This is similar to, but not the same as, a personal credit score or personal FICO score. Most people are familiar with the concept of personal credit scores. There are a few key differences between these and business credit scores. For personal credit scores, the ratings range from 300 to 850, with most lenders requiring a minimum score of at least 600 for a personal loan.
Business credit scores range from zero to 100 and most small business lending companies require aminimum business credit score of 75. The Small Business Administration , banks, suppliers and other business lenders rely heavily on business credit scores and FICO scores when providing lines of credit or extended payment terms.
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Dealing With Credit Scores Can Be Challenging Because:
It often takes at least a year or two to establish or improve your business credit history or personal credit history
You can influence and improve your credit scores with effort, but you cannot directly change them since they are given to you by external rating agencies
Internal record keeping and monitoring small business credit scores can be time consuming
Responsibilities Of Small Business Owners
Small business owners who take out business credit cards to fund the operations of their companies often do so without fully understanding their personal responsibility.
After all, one of the primary reasons business owners form corporations or LLCs is to protect their personal assets in the event that the business fails, is sued, or has claims brought against it. The fact that a business owner could indeed be personally liable for certain business debts is quite often an unpleasant surprise.
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The Personal Guarantee Explained
Agreeing to a personal guarantee on a business credit card or loan essentially makes you a co-signer for your company. In the event your business doesnt repay the lender as promised, that lender may be able to come after you personally to seek repayment for the debt. This personal promise is the lenders way of reducing risk when it loans a business money.
Part of a personal guarantee may also include language that allows the lender to report details about the account to the personal Equifax, TransUnion and Experian. This is where the potential for personal credit score damage comes into play with a business credit card.
Many lenders will only report a business account to the personal credit bureaus if something goes wrong . However, some small business credit card issuers opt to report business credit cards to both business credit reporting agencies and the personal credit bureaus every month.
Personal Cards Do Not Build Business Credit
Building credit is important in both your personal and business life. When you use your personal credit card for business expenses, you are not building your business credit history. Just like building your personal credit history is important for loans like mortgages and car notes, adding positive trade lines to your business credit report is important for future business lending needs.
As your business grows, you may want to apply for an equipment lease, purchase a building or seek funding for expansion. A strong business credit history will improve your chances of getting approved.
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Understanding Business Credit Scores
Before we dive into the details about business credit scores, how they are used, and how to keep track of them, its important to understand why they are so important, and why this is such a difficult topic for so many. Even highly educated business owners find business credit difficult to understand. There are a lot of reasons that make it complicated…and very important.
Does A Business Credit Card Affect Your Personal Credit
Business credit cards are great for building your business credit. Your personal credit report? Not so much.
While some credit card companies do report positive activity on your business card to the personal credit bureaus, most dont. But most business card issuers require you to sign a personal guarantee, which makes you liable if your company defaults on its business card payments. If that happens, the credit card company will report those failures to the personal credit bureaus, and those negative reports will affect your personal score.
In other words, your business gets all the credit when you keep your spending below your credit limit and make payments on time. But if you miss payments, itll ding both your business credit score and your personal credit score. Bummer.
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Why Is It Important
A credit score helps lenders decide whether to offer you credit, how much and at what rate. This information means theyre able to make an informed decision when lending, so they can reduce the risk to themselves.
Your credit score serves other important functions, too, because it can be used by your creditors and suppliers when your business is competing for tenders or when negotiating contracts. Youll also undergo a credit check if you open a new account with a bank or other lender.
How Do Personal Credit Scores Differ From Business Credit Scores
The main differences between the two scores are:
- Personal credit scores are private, while business credit is public meaning anyone can look up your business score.
- Personal credit scores are connected to your social security number, while business credit scores are tied to your EIN .
- Personal credit scores range from 300 to 850, while business credit scores range between zero to 100.
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Don’t Be Afraid Of Impacting Your Personal Credit Score
Even the smallest of small businesses need access to credit. Though there can be a number of credit score impacts from business credit cards showing up on your personal credit report, most are minor — so long as you’re using your business cards responsibly.
Below, we’ve listed three of our top-rated business credit cards. To see more, check out our full list of the Best Business Credit Cards.
Ink Business Unlimited® Credit Card
American Express Business Gold Card
Capital One® 1% Classic Card
|Rating image, 4.50 out of 5 stars. 4.50 stars|
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What If I Find A Mistake On My Business Credit Report
You can contact the various business credit score rating agencies directly if you ever find an error in your business credit score or FICO score reports.
We suggest that you keep an eye on the publicly available financial information about your business including business credit scores & business FICO scores. Because these scores are dynamic and change on a regular basis, business owners should make it a habit to check your business credit score and FICO score at least a few times per year, or once per quarter.
Even if your business credit score is high, you should monitor changes because it definitely affects the creditworthiness of your business. If you do find and report an error, it may take several weeks or even months before the various reporting agencies completely remove those errors from your record.
Paying bills on time and maintaining a good credit utilization record is prudent for many reasons and especially so when it comes to maintaining good business credit scores. Besides the small business financing companies, suppliers and even prospective customers look at business credit scores and FICO scores before entering into relationships or conducting large transactions with prospective business partners.
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Finding A Card That Works For Your Business
The size of your business tends to be one of the largest determining factors as to the kind of card you can select and the effect it will have on your credit scores. The best business credit cards for startups minimize impact to your personal credit and do much more.
With a corporate charge card from Rampâyou can ensure you have a card that doesnât affect your credit score when you apply.
Whatâs more, with Rampâs advanced spend controls, you can automate away many of the situations that would negatively affect both personal and business credit scores. Place spending limits, automate expense reports, and gain a firm grasp on both your companyâs financials and your personal credit score.